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VCSH vs. PFF: What’s The Difference?

The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) and the iShares Preferred and Income Securities ETF (PFF) are both among the Top 100 ETFs. VCSH is a Vanguard Short-Term Bond fund and PFF is a iShares Preferred Stock fund. So, what’s the difference between VCSH and PFF? And which fund is better?

The expense ratio of VCSH is 0.41 percentage points lower than PFF’s (0.05% vs. 0.46%). VCSH is mostly comprised of BBB bonds while PFF has a high exposure to the utilities sector. Overall, VCSH has provided lower returns than PFF over the past ten years.

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

Introduction To Mutual Funds
Introduction To Mutual Funds
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Summary

VCSHPFF
NameVanguard Short-Term Corporate Bond Index Fund ETF SharesiShares Preferred and Income Securities ETF
CategoryShort-Term BondPreferred Stock
IssuerVanguardiShares
AUM47.88B19.8B
Avg. Return3.12%6.90%
Div. Yield1.89%4.47%
Expense Ratio0.05%0.46%

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 Preferred and Income Securities ETF (PFF) is a Preferred Stock fund that is issued by iShares. It currently has 19.8B total assets under management and has yielded an average annual return of 6.90% over the past 10 years. The fund has a dividend yield of 4.47% with an expense ratio of 0.46%.

VCSH’s dividend yield is 2.58% lower than that of PFF (1.89% vs. 4.47%). Also, VCSH yielded on average 3.78% less per year over the past decade (3.12% vs. 6.90%). The expense ratio of VCSH is 0.41 percentage points lower than PFF’s (0.05% vs. 0.46%).

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Fund Composition

Holdings

VCSH - Holdings

VCSH Bond SectorsWeight
BBB47.49%
A43.06%
AA8.45%
AAA0.95%
Below B0.03%
Others0.02%
B0.0%
BB0.0%
US Government0.0%

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.

PFF - Holdings

PFF HoldingsWeight
Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A2.54%
BlackRock Cash Funds Treasury SL Agency2.3%
Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L-1.79%
Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L-1.49%
ArcelorMittal S.A. 5.5%1.36%
Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A1.35%
Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B1.14%
NextEra Energy Inc Unit1.12%
Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.41.08%
Avantor Inc Ser A0.99%

PFF’s Top Holdings are Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A, BlackRock Cash Funds Treasury SL Agency, Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L-, Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L-, and ArcelorMittal S.A. 5.5% at 2.54%, 2.3%, 1.79%, 1.49%, and 1.36%.

Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A (1.35%), Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B (1.14%), and NextEra Energy Inc Unit (1.12%) have a slightly smaller but still significant weight. Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 and Avantor Inc Ser A are also represented in the PFF’s holdings at 1.08% and 0.99%.

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Risk Analysis

VCSHPFF
Mean Return0.240.52
R-squared37.539.39
Std. Deviation2.347.87
Alpha0.933.45
Beta0.480.81
Sharpe Ratio0.970.72
Treynor Ratio4.756.79

The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) has a Standard Deviation of 2.34 with a Treynor Ratio of 4.75 and a Sharpe Ratio of 0.97. Its Alpha is 0.93 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 Preferred and Income Securities ETF (PFF) has a Beta of 0.81 with a R-squared of 9.39 and a Mean Return of 0.52. Its Alpha is 3.45 while PFF’s Treynor Ratio is 6.79. Furthermore, the fund has a Sharpe Ratio of 0.72 and a Standard Deviation of 7.87.

VCSH’s Mean Return is 0.28 points lower than that of PFF and its R-squared is 28.14 points higher. With a Standard Deviation of 2.34, VCSH is slightly less volatile than PFF. The Alpha and Beta of VCSH are 2.52 points lower and 0.33 points lower than PFF’s Alpha and Beta.

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Performance

Annual Returns

VCSH vs. PFF - Annual Returns

YearVCSHPFF
20205.08%7.94%
20196.85%15.62%
20180.91%-4.77%
20172.45%8.33%
20162.63%1.26%
20151.25%4.62%
20141.96%13.45%
20131.37%-0.59%
20125.74%18.25%
20112.94%-2.2%
20105.51%13.96%

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 2012 was the strongest year for PFF, returning 18.25% on an annual basis. The poorest year for PFF in the last ten years was 2018, with a yield of -4.77%. Most years the iShares Preferred and Income Securities ETF has given investors modest returns, such as in 2015, 2020, and 2017, when gains were 4.62%, 7.94%, and 8.33% respectively.

Portfolio Growth

VCSH vs. PFF - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VCSH$10,000$13,5693.12%
PFF$10,000$17,7896.90%

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 PFF, the end total would have been $17,789. This equates to a $7,789 profit over 10 years and a compound annual growth rate (CAGR) of 6.90%.

VCSH’s CAGR is 3.78 percentage points lower than that of PFF and as a result, would have yielded $4,220 less on a $10,000 investment. Thus, VCSH performed worse than PFF by 3.78% annually.


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