The Vanguard Small-Cap Growth Index Fund ETF Shares (VBK) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. VBK is a Vanguard Small Growth fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between VBK and VMBS? And which fund is better?
The expense ratio of VBK is 0.02 percentage points higher than VMBS’s (0.07% vs. 0.05%). VBK also has a high exposure to the technology sector while VMBS is mostly comprised of AAA bonds. Overall, VBK has provided higher returns than VMBS over the past 10 years.
In this article, we’ll compare VBK vs. VMBS. We’ll look at performance and risk metrics, as well as at their fund composition and industry exposure. Moreover, I’ll also discuss VBK’s and VMBS’s annual returns, holdings, and portfolio growth and examine how these affect their overall returns.
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Summary
| VBK | VMBS | |
| Name | Vanguard Small-Cap Growth Index Fund ETF Shares | Vanguard Mortgage-Backed Securities Index Fund ETF Shares |
| Category | Small Growth | Intermediate Government |
| Issuer | Vanguard | Vanguard |
| AUM | 37.89B | 16.61B |
| Avg. Return | 16.53% | 2.89% |
| Div. Yield | 0.45% | 1.23% |
| Expense Ratio | 0.07% | 0.05% |
The Vanguard Small-Cap Growth Index Fund ETF Shares (VBK) is a Small Growth fund that is issued by Vanguard. It currently has 37.89B total assets under management and has yielded an average annual return of 16.53% over the past 10 years. The fund has a dividend yield of 0.45% with an expense ratio of 0.07%.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) is a Intermediate Government fund that is issued by Vanguard. It currently has 16.61B total assets under management and has yielded an average annual return of 2.89% over the past 10 years. The fund has a dividend yield of 1.23% with an expense ratio of 0.05%.
VBK’s dividend yield is 0.78% lower than that of VMBS (0.45% vs. 1.23%). Also, VBK yielded on average 13.63% more per year over the past decade (16.53% vs. 2.89%). The expense ratio of VBK is 0.02 percentage points higher than VMBS’s (0.07% vs. 0.05%).
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Fund Composition
Holdings
| VBK Holdings | Weight |
| Charles River Laboratories International Inc | 0.78% |
| Pool Corp | 0.73% |
| Bio-Techne Corp | 0.73% |
| Avantor Inc | 0.73% |
| PerkinElmer Inc | 0.72% |
| Entegris Inc | 0.7% |
| PTC Inc | 0.62% |
| Fair Isaac Corp | 0.57% |
| Bill.com Holdings Inc Ordinary Shares | 0.56% |
| Avalara Inc | 0.55% |
VBK’s Top Holdings are Charles River Laboratories International Inc, Pool Corp, Bio-Techne Corp, Avantor Inc, and PerkinElmer Inc at 0.78%, 0.73%, 0.73%, 0.73%, and 0.72%.
Entegris Inc (0.7%), PTC Inc (0.62%), and Fair Isaac Corp (0.57%) have a slightly smaller but still significant weight. Bill.com Holdings Inc Ordinary Shares and Avalara Inc are also represented in the VBK’s holdings at 0.56% and 0.55%.
| VMBS Bond Sectors | Weight |
| AAA | 100.01% |
| Below B | 0.0% |
| B | 0.0% |
| BB | 0.0% |
| BBB | 0.0% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
| Others | -0.01% |
VMBS’s Top Bond Sectors are ratings of AAA, Below B, B, BB, and BBB at 100.01%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.
Risk Analysis
| VBK | VMBS | |
| Mean Return | 1.22 | 0.21 |
| R-squared | 80.56 | 65.78 |
| Std. Deviation | 17.95 | 2.02 |
| Alpha | -2.81 | 0.37 |
| Beta | 1.18 | 0.54 |
| Sharpe Ratio | 0.78 | 0.94 |
| Treynor Ratio | 11.18 | 3.47 |
The Vanguard Small-Cap Growth Index Fund ETF Shares (VBK) has a Sharpe Ratio of 0.78 with a R-squared of 80.56 and a Beta of 1.18. Its Treynor Ratio is 11.18 while VBK’s Alpha is -2.81. Furthermore, the fund has a Mean Return of 1.22 and a Standard Deviation of 17.95.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Treynor Ratio of 3.47 with a Sharpe Ratio of 0.94 and a Alpha of 0.37. Its Beta is 0.54 while VMBS’s Mean Return is 0.21. Furthermore, the fund has a Standard Deviation of 2.02 and a R-squared of 65.78.
VBK’s Mean Return is 1.01 points higher than that of VMBS and its R-squared is 14.78 points higher. With a Standard Deviation of 17.95, VBK is slightly more volatile than VMBS. The Alpha and Beta of VBK are 3.18 points lower and 0.64 points higher than VMBS’s Alpha and Beta.
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Performance
Annual Returns
| Year | VBK | VMBS |
| 2020 | 35.29% | 3.77% |
| 2019 | 32.75% | 6.17% |
| 2018 | -5.68% | 0.87% |
| 2017 | 21.9% | 2.37% |
| 2016 | 10.74% | 1.43% |
| 2015 | -2.51% | 1.43% |
| 2014 | 4.02% | 5.81% |
| 2013 | 38.18% | -1.28% |
| 2012 | 17.67% | 2.47% |
| 2011 | -1.43% | 5.89% |
| 2010 | 30.87% | 5.24% |
VBK had its best year in 2013 with an annual return of 38.18%. VBK’s worst year over the past decade yielded -5.68% and occurred in 2018. In most years the Vanguard Small-Cap Growth Index Fund ETF Shares provided moderate returns such as in 2016, 2012, and 2017 where annual returns amounted to 10.74%, 17.67%, and 21.9% respectively.
The year 2019 was the strongest year for VMBS, returning 6.17% on an annual basis. The poorest year for VMBS in the last ten years was 2013, with a yield of -1.28%. Most years the Vanguard Mortgage-Backed Securities Index Fund ETF Shares has given investors modest returns, such as in 2017, 2012, and 2020, when gains were 2.37%, 2.47%, and 3.77% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VBK | $10,000 | $37,165 | 16.53% |
| VMBS | $10,000 | $13,265 | 2.89% |
A $10,000 investment in VBK would have resulted in a final balance of $37,165. This is a profit of $27,165 over 10 years and amounts to a compound annual growth rate (CAGR) of 16.53%.
With a $10,000 investment in VMBS, the end total would have been $13,265. This equates to a $3,265 profit over 10 years and a compound annual growth rate (CAGR) of 2.89%.
VBK’s CAGR is 13.63 percentage points higher than that of VMBS and as a result, would have yielded $23,900 more on a $10,000 investment. Thus, VBK outperformed VMBS by 13.63% annually.
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