VCIT vs. IEF: What’s The Difference?

The Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) and the iShares 7-10 Year Treasury Bond ETF (IEF) are both among the Top 100 ETFs. VCIT is a Vanguard Corporate Bond fund and IEF is a iShares Long Government fund. So, what’s the difference between VCIT and IEF? And which fund is better?

The expense ratio of VCIT is 0.10 percentage points lower than IEF’s (0.05% vs. 0.15%). VCIT is mostly comprised of BBB bonds and IEF has a high exposure to AAA bond. Overall, VCIT has provided higher returns than IEF over the past ten years.

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

Summary

VCIT IEF
Name Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares iShares 7-10 Year Treasury Bond ETF
Category Corporate Bond Long Government
Issuer Vanguard iShares
AUM 48.39B 13.44B
Avg. Return 5.84% 5.06%
Div. Yield 2.33% 0.84%
Expense Ratio 0.05% 0.15%

The Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) is a Corporate Bond fund that is issued by Vanguard. It currently has 48.39B total assets under management and has yielded an average annual return of 5.84% over the past 10 years. The fund has a dividend yield of 2.33% with an expense ratio of 0.05%.

The iShares 7-10 Year Treasury Bond ETF (IEF) is a Long Government fund that is issued by iShares. It currently has 13.44B total assets under management and has yielded an average annual return of 5.06% over the past 10 years. The fund has a dividend yield of 0.84% with an expense ratio of 0.15%.

VCIT’s dividend yield is 1.49% higher than that of IEF (2.33% vs. 0.84%). Also, VCIT yielded on average 0.78% more per year over the past decade (5.84% vs. 5.06%). The expense ratio of VCIT is 0.10 percentage points lower than IEF’s (0.05% vs. 0.15%).

Fund Composition

Holdings

VCIT - Holdings

VCIT Bond Sectors Weight
BBB 55.28%
A 37.85%
AA 5.22%
AAA 1.57%
Below B 0.08%
Others 0.0%
B 0.0%
BB 0.0%
US Government 0.0%

VCIT’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and Below B at 55.28%, 37.85%, 5.22%, 1.57%, and 0.08%. The fund is less weighted towards Others (0.0%), B (0.0%), and BB (0.0%) rated bonds.

IEF - Holdings

IEF Bond Sectors Weight
AAA 100.0%
Others 0.0%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

IEF’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.

Risk Analysis

VCIT IEF
Mean Return 0.44 0.32
R-squared 63.18 77.56
Std. Deviation 5.08 5.42
Alpha 0.89 -1.2
Beta 1.35 1.59
Sharpe Ratio 0.91 0.6
Treynor Ratio 3.43 1.97

The Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) has a Mean Return of 0.44 with a Alpha of 0.89 and a Sharpe Ratio of 0.91. Its R-squared is 63.18 while VCIT’s Standard Deviation is 5.08. Furthermore, the fund has a Treynor Ratio of 3.43 and a Beta of 1.35.

The iShares 7-10 Year Treasury Bond ETF (IEF) has a Sharpe Ratio of 0.6 with a Mean Return of 0.32 and a Alpha of -1.2. Its R-squared is 77.56 while IEF’s Standard Deviation is 5.42. Furthermore, the fund has a Beta of 1.59 and a Treynor Ratio of 1.97.

VCIT’s Mean Return is 0.12 points higher than that of IEF and its R-squared is 14.38 points lower. With a Standard Deviation of 5.08, VCIT is slightly less volatile than IEF. The Alpha and Beta of VCIT are 2.09 points higher and 0.24 points lower than IEF’s Alpha and Beta.

Performance

Annual Returns

VCIT vs. IEF - Annual Returns

Year VCIT IEF
2020 9.55% 9.84%
2019 13.97% 8.38%
2018 -1.75% 0.82%
2017 5.5% 2.47%
2016 5.3% 1.0%
2015 0.88% 1.55%
2014 7.47% 8.92%
2013 -1.8% -6.12%
2012 11.36% 4.06%
2011 7.94% 15.46%
2010 10.65% 9.29%

VCIT had its best year in 2019 with an annual return of 13.97%. VCIT’s worst year over the past decade yielded -1.8% and occurred in 2013. In most years the Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares provided moderate returns such as in 2017, 2014, and 2011 where annual returns amounted to 5.5%, 7.47%, and 7.94% respectively.

The year 2011 was the strongest year for IEF, returning 15.46% on an annual basis. The poorest year for IEF in the last ten years was 2013, with a yield of -6.12%. Most years the iShares 7-10 Year Treasury Bond ETF has given investors modest returns, such as in 2017, 2012, and 2019, when gains were 2.47%, 4.06%, and 8.38% respectively.

Portfolio Growth

VCIT vs. IEF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VCIT $10,000 $17,439 5.84%
IEF $10,000 $15,497 5.06%

A $10,000 investment in VCIT would have resulted in a final balance of $17,439. This is a profit of $7,439 over 10 years and amounts to a compound annual growth rate (CAGR) of 5.84%.

With a $10,000 investment in IEF, the end total would have been $15,497. This equates to a $5,497 profit over 10 years and a compound annual growth rate (CAGR) of 5.06%.

VCIT’s CAGR is 0.78 percentage points higher than that of IEF and as a result, would have yielded $1,942 more on a $10,000 investment. Thus, VCIT outperformed IEF by 0.78% annually.


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