VCIT vs. VNQ: What’s The Difference?

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

The expense ratio of VCIT is 0.07 percentage points lower than VNQ’s (0.05% vs. 0.12%). VCIT is mostly comprised of BBB bonds while VNQ has a high exposure to the real estate sector. Overall, VCIT has provided lower returns than VNQ over the past ten years.

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

Summary

VCIT VNQ
Name Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares Vanguard Real Estate Index Fund ETF Shares
Category Corporate Bond Real Estate
Issuer Vanguard Vanguard
AUM 48.39B 77.34B
Avg. Return 5.84% 11.05%
Div. Yield 2.33% 2.34%
Expense Ratio 0.05% 0.12%

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 Real Estate Index Fund ETF Shares (VNQ) is a Real Estate fund that is issued by Vanguard. It currently has 77.34B total assets under management and has yielded an average annual return of 11.05% over the past 10 years. The fund has a dividend yield of 2.34% with an expense ratio of 0.12%.

VCIT’s dividend yield is 0.01% lower than that of VNQ (2.33% vs. 2.34%). Also, VCIT yielded on average 5.21% less per year over the past decade (5.84% vs. 11.05%). The expense ratio of VCIT is 0.07 percentage points lower than VNQ’s (0.05% vs. 0.12%).

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.

VNQ - Holdings

VNQ Holdings Weight
Vanguard Real Estate II Index 11.62%
American Tower Corp 7.24%
Prologis Inc 5.33%
Crown Castle International Corp 5.01%
Equinix Inc 4.3%
Public Storage 2.85%
Simon Property Group Inc 2.52%
Digital Realty Trust Inc 2.49%
SBA Communications Corp 2.1%
Welltower Inc 2.09%

VNQ’s Top Holdings are Vanguard Real Estate II Index, American Tower Corp, Prologis Inc, Crown Castle International Corp, and Equinix Inc at 11.62%, 7.24%, 5.33%, 5.01%, and 4.3%.

Public Storage (2.85%), Simon Property Group Inc (2.52%), and Digital Realty Trust Inc (2.49%) have a slightly smaller but still significant weight. SBA Communications Corp and Welltower Inc are also represented in the VNQ’s holdings at 2.1% and 2.09%.

Risk Analysis

VCIT VNQ
Mean Return 0.44 0.89
R-squared 63.18 44.4
Std. Deviation 5.08 16.13
Alpha 0.89 2.47
Beta 1.35 0.76
Sharpe Ratio 0.91 0.62
Treynor Ratio 3.43 11.9

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

The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a Treynor Ratio of 11.9 with a R-squared of 44.4 and a Alpha of 2.47. Its Standard Deviation is 16.13 while VNQ’s Mean Return is 0.89. Furthermore, the fund has a Sharpe Ratio of 0.62 and a Beta of 0.76.

VCIT’s Mean Return is 0.45 points lower than that of VNQ and its R-squared is 18.78 points higher. With a Standard Deviation of 5.08, VCIT is slightly less volatile than VNQ. The Alpha and Beta of VCIT are 1.58 points lower and 0.59 points higher than VNQ’s Alpha and Beta.

Performance

Annual Returns

VCIT vs. VNQ - Annual Returns

Year VCIT VNQ
2020 9.55% -4.72%
2019 13.97% 28.91%
2018 -1.75% -5.95%
2017 5.5% 4.95%
2016 5.3% 8.53%
2015 0.88% 2.37%
2014 7.47% 30.29%
2013 -1.8% 2.42%
2012 11.36% 17.67%
2011 7.94% 8.62%
2010 10.65% 28.44%

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 2014 was the strongest year for VNQ, returning 30.29% on an annual basis. The poorest year for VNQ in the last ten years was 2018, with a yield of -5.95%. Most years the Vanguard Real Estate Index Fund ETF Shares has given investors modest returns, such as in 2017, 2016, and 2011, when gains were 4.95%, 8.53%, and 8.62% respectively.

Portfolio Growth

VCIT vs. VNQ - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VCIT $10,000 $17,439 5.84%
VNQ $10,000 $22,973 11.05%

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 VNQ, the end total would have been $22,973. This equates to a $12,973 profit over 10 years and a compound annual growth rate (CAGR) of 11.05%.

VCIT’s CAGR is 5.21 percentage points lower than that of VNQ and as a result, would have yielded $5,534 less on a $10,000 investment. Thus, VCIT performed worse than VNQ by 5.21% annually.


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