VCIT vs. VMBS: What’s The Difference?

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

VCIT and VMBS have the same expense ratio: 0.05%. VCIT is mostly comprised of BBB bonds and VMBS has a high exposure to AAA bond. Overall, VCIT has provided higher returns than VMBS over the past ten years.

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

Summary

VCIT VMBS
Name Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Corporate Bond Intermediate Government
Issuer Vanguard Vanguard
AUM 48.39B 16.61B
Avg. Return 5.84% 2.89%
Div. Yield 2.33% 1.23%
Expense Ratio 0.05% 0.05%

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 Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) is a Intermediate Government fund that is issued by Vanguard. It currently has 16.61B total assets under management and has yielded an average annual return of 2.89% over the past 10 years. The fund has a dividend yield of 1.23% with an expense ratio of 0.05%.

VCIT’s dividend yield is 1.10% higher than that of VMBS (2.33% vs. 1.23%). Also, VCIT yielded on average 2.95% more per year over the past decade (5.84% vs. 2.89%). VCIT and VMBS have the same expense ratio: 0.05%.

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.

VMBS - Holdings

VMBS Bond Sectors Weight
AAA 100.01%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%
Others -0.01%

VMBS’s Top Bond Sectors are ratings of AAA, Below B, B, BB, and BBB at 100.01%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.

Risk Analysis

VCIT VMBS
Mean Return 0.44 0.21
R-squared 63.18 65.78
Std. Deviation 5.08 2.02
Alpha 0.89 0.37
Beta 1.35 0.54
Sharpe Ratio 0.91 0.94
Treynor Ratio 3.43 3.47

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

The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Mean Return of 0.21 with a Beta of 0.54 and a Sharpe Ratio of 0.94. Its Alpha is 0.37 while VMBS’s R-squared is 65.78. Furthermore, the fund has a Treynor Ratio of 3.47 and a Standard Deviation of 2.02.

VCIT’s Mean Return is 0.23 points higher than that of VMBS and its R-squared is 2.60 points lower. With a Standard Deviation of 5.08, VCIT is slightly more volatile than VMBS. The Alpha and Beta of VCIT are 0.52 points higher and 0.81 points higher than VMBS’s Alpha and Beta.

Performance

Annual Returns

VCIT vs. VMBS - Annual Returns

Year VCIT VMBS
2020 9.55% 3.77%
2019 13.97% 6.17%
2018 -1.75% 0.87%
2017 5.5% 2.37%
2016 5.3% 1.43%
2015 0.88% 1.43%
2014 7.47% 5.81%
2013 -1.8% -1.28%
2012 11.36% 2.47%
2011 7.94% 5.89%
2010 10.65% 5.24%

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 VMBS, returning 6.17% on an annual basis. The poorest year for VMBS in the last ten years was 2013, with a yield of -1.28%. Most years the Vanguard Mortgage-Backed Securities Index Fund ETF Shares has given investors modest returns, such as in 2017, 2012, and 2020, when gains were 2.37%, 2.47%, and 3.77% respectively.

Portfolio Growth

VCIT vs. VMBS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VCIT $10,000 $17,439 5.84%
VMBS $10,000 $13,265 2.89%

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 VMBS, the end total would have been $13,265. This equates to a $3,265 profit over 10 years and a compound annual growth rate (CAGR) of 2.89%.

VCIT’s CAGR is 2.95 percentage points higher than that of VMBS and as a result, would have yielded $4,174 more on a $10,000 investment. Thus, VCIT outperformed VMBS by 2.95% annually.


Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

2) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

3) If you are interested in crypto, check out Gemini. I've started allocating a small amount of assets to the growing crypto space and Gemini has just been a breeze to use. Once you register, make sure to also open an Active Trader account to buy crypto at the lowest fees on the market (just 0.03%!).

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply