VBR vs. PFF: What’s The Difference?

The Vanguard Small-Cap Value Index Fund ETF Shares (VBR) and the iShares Preferred and Income Securities ETF (PFF) are both among the Top 100 ETFs. VBR is a Vanguard Small Value fund and PFF is a iShares Preferred Stock fund. So, what’s the difference between VBR and PFF? And which fund is better?

The expense ratio of VBR is 0.39 percentage points lower than PFF’s (0.07% vs. 0.46%). VBR also has a higher exposure to the financial services sector and a higher standard deviation. Overall, VBR has provided higher returns than PFF over the past 11 years.

In this article, we’ll compare VBR vs. PFF. We’ll look at fund composition and industry exposure, as well as at their risk metrics and annual returns. Moreover, I’ll also discuss VBR’s and PFF’s portfolio growth, performance, and holdings and examine how these affect their overall returns.

Summary

VBR PFF
Name Vanguard Small-Cap Value Index Fund ETF Shares iShares Preferred and Income Securities ETF
Category Small Value Preferred Stock
Issuer Vanguard iShares
AUM 48.08B 19.8B
Avg. Return 12.28% 6.90%
Div. Yield 1.6% 4.47%
Expense Ratio 0.07% 0.46%

The Vanguard Small-Cap Value Index Fund ETF Shares (VBR) is a Small Value fund that is issued by Vanguard. It currently has 48.08B total assets under management and has yielded an average annual return of 12.28% over the past 10 years. The fund has a dividend yield of 1.6% with an expense ratio of 0.07%.

The iShares Preferred and Income Securities ETF (PFF) is a Preferred Stock fund that is issued by iShares. It currently has 19.8B total assets under management and has yielded an average annual return of 6.90% over the past 10 years. The fund has a dividend yield of 4.47% with an expense ratio of 0.46%.

VBR’s dividend yield is 2.87% lower than that of PFF (1.6% vs. 4.47%). Also, VBR yielded on average 5.38% more per year over the past decade (12.28% vs. 6.90%). The expense ratio of VBR is 0.39 percentage points lower than PFF’s (0.07% vs. 0.46%).

Fund Composition

Industry Exposure

VBR vs. PFF - Industry Exposure

VBR PFF
Technology 8.39% 0.0%
Industrials 18.44% 10.27%
Energy 5.15% 0.0%
Communication Services 1.77% 0.0%
Utilities 3.65% 81.81%
Healthcare 7.16% 3.54%
Consumer Defensive 4.36% 0.0%
Real Estate 10.92% 0.65%
Financial Services 20.04% 0.0%
Consumer Cyclical 13.82% 0.0%
Basic Materials 6.31% 3.74%

The Vanguard Small-Cap Value Index Fund ETF Shares (VBR) has the most exposure to the Financial Services sector at 20.04%. This is followed by Industrials and Consumer Cyclical at 18.44% and 13.82% respectively. Utilities (3.65%), Consumer Defensive (4.36%), and Energy (5.15%) only make up 13.16% of the fund’s total assets.

VBR’s mid-section with moderate exposure is comprised of Basic Materials, Healthcare, Technology, Real Estate, and Consumer Cyclical stocks at 6.31%, 7.16%, 8.39%, 10.92%, and 13.82%.

The iShares Preferred and Income Securities ETF (PFF) has the most exposure to the Utilities sector at 81.81%. This is followed by Industrials and Basic Materials at 10.27% and 3.74% respectively. Financial Services (0.0%), Consumer Defensive (0.0%), and Communication Services (0.0%) only make up 0.00% of the fund’s total assets.

PFF’s mid-section with moderate exposure is comprised of Energy, Technology, Real Estate, Healthcare, and Basic Materials stocks at 0.0%, 0.0%, 0.65%, 3.54%, and 3.74%.

VBR is 20.04% more exposed to the Financial Services sector than PFF (20.04% vs 0.0%). VBR’s exposure to Industrials and Consumer Cyclical stocks is 8.17% higher and 13.82% higher respectively (18.44% vs. 10.27% and 13.82% vs. 0.0%). In total, Utilities, Consumer Defensive, and Energy also make up 68.65% less of the fund’s holdings compared to PFF (13.16% vs. 81.81%).

Holdings

VBR - Holdings

VBR Holdings Weight
Diamondback Energy Inc 0.55%
VICI Properties Inc Ordinary Shares 0.54%
IDEX Corp 0.54%
Nuance Communications Inc 0.5%
Molina Healthcare Inc 0.48%
Signature Bank 0.46%
Novavax Inc 0.44%
Howmet Aerospace Inc 0.44%
Apollo Global Management Inc Class A 0.42%
Brown & Brown Inc 0.41%

VBR’s Top Holdings are Diamondback Energy Inc, VICI Properties Inc Ordinary Shares, IDEX Corp, Nuance Communications Inc, and Molina Healthcare Inc at 0.55%, 0.54%, 0.54%, 0.5%, and 0.48%.

Signature Bank (0.46%), Novavax Inc (0.44%), and Howmet Aerospace Inc (0.44%) have a slightly smaller but still significant weight. Apollo Global Management Inc Class A and Brown & Brown Inc are also represented in the VBR’s holdings at 0.42% and 0.41%.

PFF - Holdings

PFF Holdings Weight
Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A 2.54%
BlackRock Cash Funds Treasury SL Agency 2.3%
Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L- 1.79%
Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L- 1.49%
ArcelorMittal S.A. 5.5% 1.36%
Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A 1.35%
Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B 1.14%
NextEra Energy Inc Unit 1.12%
Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 1.08%
Avantor Inc Ser A 0.99%

PFF’s Top Holdings are Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A, BlackRock Cash Funds Treasury SL Agency, Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L-, Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L-, and ArcelorMittal S.A. 5.5% at 2.54%, 2.3%, 1.79%, 1.49%, and 1.36%.

Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A (1.35%), Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B (1.14%), and NextEra Energy Inc Unit (1.12%) have a slightly smaller but still significant weight. Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 and Avantor Inc Ser A are also represented in the PFF’s holdings at 1.08% and 0.99%.

Risk Analysis

VBR PFF
Mean Return 1.08 0.52
R-squared 82.2 9.39
Std. Deviation 18.37 7.87
Alpha -5.09 3.45
Beta 1.23 0.81
Sharpe Ratio 0.67 0.72
Treynor Ratio 9.15 6.79

The Vanguard Small-Cap Value Index Fund ETF Shares (VBR) has a Treynor Ratio of 9.15 with a Standard Deviation of 18.37 and a Mean Return of 1.08. Its R-squared is 82.2 while VBR’s Beta is 1.23. Furthermore, the fund has a Sharpe Ratio of 0.67 and a Alpha of -5.09.

The iShares Preferred and Income Securities ETF (PFF) has a Alpha of 3.45 with a Standard Deviation of 7.87 and a Treynor Ratio of 6.79. Its R-squared is 9.39 while PFF’s Beta is 0.81. Furthermore, the fund has a Mean Return of 0.52 and a Sharpe Ratio of 0.72.

VBR’s Mean Return is 0.56 points higher than that of PFF and its R-squared is 72.81 points higher. With a Standard Deviation of 18.37, VBR is slightly more volatile than PFF. The Alpha and Beta of VBR are 8.54 points lower and 0.42 points higher than PFF’s Alpha and Beta.

Performance

Annual Returns

VBR vs. PFF - Annual Returns

Year VBR PFF
2020 5.82% 7.94%
2019 22.76% 15.62%
2018 -12.22% -4.77%
2017 11.79% 8.33%
2016 24.8% 1.26%
2015 -4.67% 4.62%
2014 10.55% 13.45%
2013 36.57% -0.59%
2012 18.78% 18.25%
2011 -4.05% -2.2%
2010 24.97% 13.96%

VBR had its best year in 2013 with an annual return of 36.57%. VBR’s worst year over the past decade yielded -12.22% and occurred in 2018. In most years the Vanguard Small-Cap Value Index Fund ETF Shares provided moderate returns such as in 2014, 2017, and 2012 where annual returns amounted to 10.55%, 11.79%, and 18.78% respectively.

The year 2012 was the strongest year for PFF, returning 18.25% on an annual basis. The poorest year for PFF in the last ten years was 2018, with a yield of -4.77%. Most years the iShares Preferred and Income Securities ETF has given investors modest returns, such as in 2015, 2020, and 2017, when gains were 4.62%, 7.94%, and 8.33% respectively.

Portfolio Growth

VBR vs. PFF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VBR $10,000 $32,611 12.28%
PFF $10,000 $20,272 6.90%

A $10,000 investment in VBR would have resulted in a final balance of $32,611. This is a profit of $22,611 over 11 years and amounts to a compound annual growth rate (CAGR) of 12.28%.

With a $10,000 investment in PFF, the end total would have been $20,272. This equates to a $10,272 profit over 11 years and a compound annual growth rate (CAGR) of 6.90%.

VBR’s CAGR is 5.38 percentage points higher than that of PFF and as a result, would have yielded $12,339 more on a $10,000 investment. Thus, VBR outperformed PFF by 5.38% annually.


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