VCIT vs. MBB: What’s The Difference?

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

The expense ratio of VCIT is 0.01 percentage points lower than MBB’s (0.05% vs. 0.06%). VCIT is mostly comprised of BBB bonds and MBB has a high exposure to AAA bond. Overall, VCIT has provided higher returns than MBB over the past ten years.

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

Summary

VCIT MBB
Name Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares iShares MBS ETF
Category Corporate Bond Intermediate Government
Issuer Vanguard iShares
AUM 48.39B 25.69B
Avg. Return 5.84% 3.08%
Div. Yield 2.33% 1.88%
Expense Ratio 0.05% 0.06%

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 MBS ETF (MBB) is a Intermediate Government fund that is issued by iShares. It currently has 25.69B total assets under management and has yielded an average annual return of 3.08% over the past 10 years. The fund has a dividend yield of 1.88% with an expense ratio of 0.06%.

VCIT’s dividend yield is 0.45% higher than that of MBB (2.33% vs. 1.88%). Also, VCIT yielded on average 2.77% more per year over the past decade (5.84% vs. 3.08%). The expense ratio of VCIT is 0.01 percentage points lower than MBB’s (0.05% vs. 0.06%).

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.

MBB - Holdings

MBB Bond Sectors Weight
AAA 99.51%
Others 0.49%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

MBB’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.51%, 0.49%, 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 MBB
Mean Return 0.44 0.2
R-squared 63.18 74.38
Std. Deviation 5.08 2.12
Alpha 0.89 0.14
Beta 1.35 0.6
Sharpe Ratio 0.91 0.87
Treynor Ratio 3.43 3.02

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

The iShares MBS ETF (MBB) has a Treynor Ratio of 3.02 with a Standard Deviation of 2.12 and a Mean Return of 0.2. Its Alpha is 0.14 while MBB’s Beta is 0.6. Furthermore, the fund has a Sharpe Ratio of 0.87 and a R-squared of 74.38.

VCIT’s Mean Return is 0.24 points higher than that of MBB and its R-squared is 11.20 points lower. With a Standard Deviation of 5.08, VCIT is slightly more volatile than MBB. The Alpha and Beta of VCIT are 0.75 points higher and 0.75 points higher than MBB’s Alpha and Beta.

Performance

Annual Returns

VCIT vs. MBB - Annual Returns

Year VCIT MBB
2020 9.55% 4.03%
2019 13.97% 6.27%
2018 -1.75% 0.81%
2017 5.5% 2.37%
2016 5.3% 1.28%
2015 0.88% 1.28%
2014 7.47% 6.16%
2013 -1.8% -1.92%
2012 11.36% 2.23%
2011 7.94% 5.88%
2010 10.65% 5.44%

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 2019 was the strongest year for MBB, returning 6.27% on an annual basis. The poorest year for MBB in the last ten years was 2013, with a yield of -1.92%. Most years the iShares MBS ETF has given investors modest returns, such as in 2012, 2017, and 2020, when gains were 2.23%, 2.37%, and 4.03% respectively.

Portfolio Growth

VCIT vs. MBB - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VCIT $10,000 $17,439 5.84%
MBB $10,000 $13,189 3.08%

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 MBB, the end total would have been $13,189. This equates to a $3,189 profit over 10 years and a compound annual growth rate (CAGR) of 3.08%.

VCIT’s CAGR is 2.77 percentage points higher than that of MBB and as a result, would have yielded $4,250 more on a $10,000 investment. Thus, VCIT outperformed MBB by 2.77% annually.


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