VCIT vs. SHY: What’s The Difference?

The Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) and the iShares 1-3 Year Treasury Bond ETF (SHY) are both among the Top 100 ETFs. VCIT is a Vanguard Corporate Bond fund and SHY is a iShares Short Government fund. So, what’s the difference between VCIT and SHY? And which fund is better?

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

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

Summary

VCIT SHY
Name Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares iShares 1-3 Year Treasury Bond ETF
Category Corporate Bond Short Government
Issuer Vanguard iShares
AUM 48.39B 19.51B
Avg. Return 5.84% 1.27%
Div. Yield 2.33% 0.46%
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 1-3 Year Treasury Bond ETF (SHY) is a Short Government fund that is issued by iShares. It currently has 19.51B total assets under management and has yielded an average annual return of 1.27% over the past 10 years. The fund has a dividend yield of 0.46% with an expense ratio of 0.15%.

VCIT’s dividend yield is 1.87% higher than that of SHY (2.33% vs. 0.46%). Also, VCIT yielded on average 4.57% more per year over the past decade (5.84% vs. 1.27%). The expense ratio of VCIT is 0.10 percentage points lower than SHY’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.

SHY - Holdings

SHY Bond Sectors Weight
AAA 99.67%
Others 0.33%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

SHY’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.67%, 0.33%, 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 SHY
Mean Return 0.44 0.09
R-squared 63.18 39.11
Std. Deviation 5.08 0.89
Alpha 0.89 -0.03
Beta 1.35 0.18
Sharpe Ratio 0.91 0.54
Treynor Ratio 3.43 2.6

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

The iShares 1-3 Year Treasury Bond ETF (SHY) has a Beta of 0.18 with a R-squared of 39.11 and a Sharpe Ratio of 0.54. Its Alpha is -0.03 while SHY’s Mean Return is 0.09. Furthermore, the fund has a Treynor Ratio of 2.6 and a Standard Deviation of 0.89.

VCIT’s Mean Return is 0.35 points higher than that of SHY and its R-squared is 24.07 points higher. With a Standard Deviation of 5.08, VCIT is slightly more volatile than SHY. The Alpha and Beta of VCIT are 0.92 points higher and 1.17 points higher than SHY’s Alpha and Beta.

Performance

Annual Returns

VCIT vs. SHY - Annual Returns

Year VCIT SHY
2020 9.55% 3.01%
2019 13.97% 3.42%
2018 -1.75% 1.45%
2017 5.5% 0.27%
2016 5.3% 0.75%
2015 0.88% 0.43%
2014 7.47% 0.48%
2013 -1.8% 0.23%
2012 11.36% 0.31%
2011 7.94% 1.43%
2010 10.65% 2.23%

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 SHY, returning 3.42% on an annual basis. The poorest year for SHY in the last ten years was 2013, with a yield of 0.23%. Most years the iShares 1-3 Year Treasury Bond ETF has given investors modest returns, such as in 2014, 2016, and 2011, when gains were 0.48%, 0.75%, and 1.43% respectively.

Portfolio Growth

VCIT vs. SHY - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VCIT $10,000 $17,439 5.84%
SHY $10,000 $11,235 1.27%

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 SHY, the end total would have been $11,235. This equates to a $1,235 profit over 10 years and a compound annual growth rate (CAGR) of 1.27%.

VCIT’s CAGR is 4.57 percentage points higher than that of SHY and as a result, would have yielded $6,204 more on a $10,000 investment. Thus, VCIT outperformed SHY by 4.57% annually.


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