VCIT vs. PFF: What’s The Difference?

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

The expense ratio of VCIT is 0.41 percentage points lower than PFF’s (0.05% vs. 0.46%). VCIT is mostly comprised of BBB bonds while PFF has a high exposure to the utilities sector. Overall, VCIT has provided lower returns than PFF over the past ten years.

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

Summary

VCIT PFF
Name Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares iShares Preferred and Income Securities ETF
Category Corporate Bond Preferred Stock
Issuer Vanguard iShares
AUM 48.39B 19.8B
Avg. Return 5.84% 6.90%
Div. Yield 2.33% 4.47%
Expense Ratio 0.05% 0.46%

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 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%.

VCIT’s dividend yield is 2.14% lower than that of PFF (2.33% vs. 4.47%). Also, VCIT yielded on average 1.06% less per year over the past decade (5.84% vs. 6.90%). The expense ratio of VCIT is 0.41 percentage points lower than PFF’s (0.05% vs. 0.46%).

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.

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

VCIT PFF
Mean Return 0.44 0.52
R-squared 63.18 9.39
Std. Deviation 5.08 7.87
Alpha 0.89 3.45
Beta 1.35 0.81
Sharpe Ratio 0.91 0.72
Treynor Ratio 3.43 6.79

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

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

VCIT’s Mean Return is 0.08 points lower than that of PFF and its R-squared is 53.79 points higher. With a Standard Deviation of 5.08, VCIT is slightly less volatile than PFF. The Alpha and Beta of VCIT are 2.56 points lower and 0.54 points higher than PFF’s Alpha and Beta.

Performance

Annual Returns

VCIT vs. PFF - Annual Returns

Year VCIT PFF
2020 9.55% 7.94%
2019 13.97% 15.62%
2018 -1.75% -4.77%
2017 5.5% 8.33%
2016 5.3% 1.26%
2015 0.88% 4.62%
2014 7.47% 13.45%
2013 -1.8% -0.59%
2012 11.36% 18.25%
2011 7.94% -2.2%
2010 10.65% 13.96%

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 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

VCIT vs. PFF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VCIT $10,000 $17,439 5.84%
PFF $10,000 $17,789 6.90%

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 PFF, the end total would have been $17,789. This equates to a $7,789 profit over 10 years and a compound annual growth rate (CAGR) of 6.90%.

VCIT’s CAGR is 1.06 percentage points lower than that of PFF and as a result, would have yielded $350 less on a $10,000 investment. Thus, VCIT performed worse than PFF by 1.06% annually.


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