VCSH vs. IEF: What’s The Difference?

The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) and the iShares 7-10 Year Treasury Bond ETF (IEF) are both among the Top 100 ETFs. VCSH is a Vanguard Short-Term Bond fund and IEF is a iShares Long Government fund. So, what’s the difference between VCSH and IEF? And which fund is better?

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

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

Summary

VCSH IEF
Name Vanguard Short-Term Corporate Bond Index Fund ETF Shares iShares 7-10 Year Treasury Bond ETF
Category Short-Term Bond Long Government
Issuer Vanguard iShares
AUM 47.88B 13.44B
Avg. Return 3.12% 5.06%
Div. Yield 1.89% 0.84%
Expense Ratio 0.05% 0.15%

The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) is a Short-Term Bond fund that is issued by Vanguard. It currently has 47.88B total assets under management and has yielded an average annual return of 3.12% over the past 10 years. The fund has a dividend yield of 1.89% with an expense ratio of 0.05%.

The iShares 7-10 Year Treasury Bond ETF (IEF) is a Long Government fund that is issued by iShares. It currently has 13.44B total assets under management and has yielded an average annual return of 5.06% over the past 10 years. The fund has a dividend yield of 0.84% with an expense ratio of 0.15%.

VCSH’s dividend yield is 1.05% higher than that of IEF (1.89% vs. 0.84%). Also, VCSH yielded on average 1.94% less per year over the past decade (3.12% vs. 5.06%). The expense ratio of VCSH is 0.10 percentage points lower than IEF’s (0.05% vs. 0.15%).

Fund Composition

Holdings

VCSH - Holdings

VCSH Bond Sectors Weight
BBB 47.49%
A 43.06%
AA 8.45%
AAA 0.95%
Below B 0.03%
Others 0.02%
B 0.0%
BB 0.0%
US Government 0.0%

VCSH’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and Below B at 47.49%, 43.06%, 8.45%, 0.95%, and 0.03%. The fund is less weighted towards Others (0.02%), B (0.0%), and BB (0.0%) rated bonds.

IEF - Holdings

IEF Bond Sectors Weight
AAA 100.0%
Others 0.0%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

IEF’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 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

VCSH IEF
Mean Return 0.24 0.32
R-squared 37.53 77.56
Std. Deviation 2.34 5.42
Alpha 0.93 -1.2
Beta 0.48 1.59
Sharpe Ratio 0.97 0.6
Treynor Ratio 4.75 1.97

The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) has a Alpha of 0.93 with a Standard Deviation of 2.34 and a Treynor Ratio of 4.75. Its Sharpe Ratio is 0.97 while VCSH’s Beta is 0.48. Furthermore, the fund has a R-squared of 37.53 and a Mean Return of 0.24.

The iShares 7-10 Year Treasury Bond ETF (IEF) has a Mean Return of 0.32 with a Sharpe Ratio of 0.6 and a R-squared of 77.56. Its Beta is 1.59 while IEF’s Standard Deviation is 5.42. Furthermore, the fund has a Treynor Ratio of 1.97 and a Alpha of -1.2.

VCSH’s Mean Return is 0.08 points lower than that of IEF and its R-squared is 40.03 points lower. With a Standard Deviation of 2.34, VCSH is slightly less volatile than IEF. The Alpha and Beta of VCSH are 2.13 points higher and 1.11 points lower than IEF’s Alpha and Beta.

Performance

Annual Returns

VCSH vs. IEF - Annual Returns

Year VCSH IEF
2020 5.08% 9.84%
2019 6.85% 8.38%
2018 0.91% 0.82%
2017 2.45% 2.47%
2016 2.63% 1.0%
2015 1.25% 1.55%
2014 1.96% 8.92%
2013 1.37% -6.12%
2012 5.74% 4.06%
2011 2.94% 15.46%
2010 5.51% 9.29%

VCSH had its best year in 2019 with an annual return of 6.85%. VCSH’s worst year over the past decade yielded 0.91% and occurred in 2018. In most years the Vanguard Short-Term Corporate Bond Index Fund ETF Shares provided moderate returns such as in 2017, 2016, and 2011 where annual returns amounted to 2.45%, 2.63%, and 2.94% respectively.

The year 2011 was the strongest year for IEF, returning 15.46% on an annual basis. The poorest year for IEF in the last ten years was 2013, with a yield of -6.12%. Most years the iShares 7-10 Year Treasury Bond ETF has given investors modest returns, such as in 2017, 2012, and 2019, when gains were 2.47%, 4.06%, and 8.38% respectively.

Portfolio Growth

VCSH vs. IEF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VCSH $10,000 $13,569 3.12%
IEF $10,000 $15,497 5.06%

A $10,000 investment in VCSH would have resulted in a final balance of $13,569. This is a profit of $3,569 over 10 years and amounts to a compound annual growth rate (CAGR) of 3.12%.

With a $10,000 investment in IEF, the end total would have been $15,497. This equates to a $5,497 profit over 10 years and a compound annual growth rate (CAGR) of 5.06%.

VCSH’s CAGR is 1.94 percentage points lower than that of IEF and as a result, would have yielded $1,928 less on a $10,000 investment. Thus, VCSH performed worse than IEF by 1.94% annually.


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