The Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) and the iShares MSCI USA Quality Factor ETF (QUAL) are both among the Top 100 ETFs. VCIT is a Vanguard Corporate Bond fund and QUAL is a iShares Large Blend fund. So, what’s the difference between VCIT and QUAL? And which fund is better?
The expense ratio of VCIT is 0.10 percentage points lower than QUAL’s (0.05% vs. 0.15%). VCIT is mostly comprised of BBB bonds while QUAL has a high exposure to the technology sector. Overall, VCIT has provided lower returns than QUAL over the past ten years.
In this article, we’ll compare VCIT vs. QUAL. We’ll look at portfolio growth and fund composition, as well as at their annual returns and holdings. Moreover, I’ll also discuss VCIT’s and QUAL’s industry exposure, performance, and risk metrics and examine how these affect their overall returns.
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Summary
| VCIT | QUAL | |
| Name | Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares | iShares MSCI USA Quality Factor ETF |
| Category | Corporate Bond | Large Blend |
| Issuer | Vanguard | iShares |
| AUM | 48.39B | 23.93B |
| Avg. Return | 5.84% | 13.42% |
| Div. Yield | 2.33% | 1.29% |
| 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 MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.
VCIT’s dividend yield is 1.04% higher than that of QUAL (2.33% vs. 1.29%). Also, VCIT yielded on average 7.58% less per year over the past decade (5.84% vs. 13.42%). The expense ratio of VCIT is 0.10 percentage points lower than QUAL’s (0.05% vs. 0.15%).
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Fund Composition
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.
| QUAL Holdings | Weight |
| Facebook Inc Class A | 4.77% |
| Nike Inc Class B | 4.05% |
| Microsoft Corp | 3.54% |
| Apple Inc | 3.52% |
| Johnson & Johnson | 2.99% |
| BlackRock Inc | 2.87% |
| Target Corp | 2.8% |
| Mastercard Inc Class A | 2.72% |
| NVIDIA Corp | 2.71% |
| Alphabet Inc Class A | 2.49% |
QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.
BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.
Risk Analysis
| VCIT | QUAL | |
| Mean Return | 0.44 | 0 |
| R-squared | 63.18 | 0 |
| Std. Deviation | 5.08 | 0 |
| Alpha | 0.89 | 0 |
| Beta | 1.35 | 0 |
| Sharpe Ratio | 0.91 | 0 |
| Treynor Ratio | 3.43 | 0 |
The Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) has a Treynor Ratio of 3.43 with a Mean Return of 0.44 and a Beta of 1.35. Its Standard Deviation is 5.08 while VCIT’s Alpha is 0.89. Furthermore, the fund has a Sharpe Ratio of 0.91 and a R-squared of 63.18.
The iShares MSCI USA Quality Factor ETF (QUAL) has a Sharpe Ratio of 0 with a R-squared of 0 and a Beta of 0. Its Standard Deviation is 0 while QUAL’s Alpha is 0. Furthermore, the fund has a Treynor Ratio of 0 and a Mean Return of 0.
VCIT’s Mean Return is 0.44 points higher than that of QUAL and its R-squared is 63.18 points higher. With a Standard Deviation of 5.08, VCIT is slightly more volatile than QUAL. The Alpha and Beta of VCIT are 0.89 points higher and 1.35 points higher than QUAL’s Alpha and Beta.
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Performance
Annual Returns
| Year | VCIT | QUAL |
| 2020 | 9.55% | 16.96% |
| 2019 | 13.97% | 34.14% |
| 2018 | -1.75% | -5.77% |
| 2017 | 5.5% | 22.26% |
| 2016 | 5.3% | 9.18% |
| 2015 | 0.88% | 5.56% |
| 2014 | 7.47% | 11.62% |
| 2013 | -1.8% | 0.0% |
| 2012 | 11.36% | 0.0% |
| 2011 | 7.94% | 0.0% |
| 2010 | 10.65% | 0.0% |
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 QUAL, returning 34.14% on an annual basis. The poorest year for QUAL in the last ten years was 2018, with a yield of -5.77%. Most years the iShares MSCI USA Quality Factor ETF has given investors modest returns, such as in 2010, 2015, and 2016, when gains were 0.0%, 5.56%, and 9.18% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VCIT | $10,000 | $14,774 | 5.84% |
| QUAL | $10,000 | $23,251 | 13.42% |
A $10,000 investment in VCIT would have resulted in a final balance of $14,774. This is a profit of $4,774 over 7 years and amounts to a compound annual growth rate (CAGR) of 5.84%.
With a $10,000 investment in QUAL, the end total would have been $23,251. This equates to a $13,251 profit over 7 years and a compound annual growth rate (CAGR) of 13.42%.
VCIT’s CAGR is 7.58 percentage points lower than that of QUAL and as a result, would have yielded $8,477 less on a $10,000 investment. Thus, VCIT performed worse than QUAL by 7.58% annually.
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