VCSH vs. QUAL: What’s The Difference?

The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) and the iShares MSCI USA Quality Factor ETF (QUAL) are both among the Top 100 ETFs. VCSH is a Vanguard Short-Term Bond fund and QUAL is a iShares Large Blend fund. So, what’s the difference between VCSH and QUAL? And which fund is better?

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

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

Summary

VCSH QUAL
Name Vanguard Short-Term Corporate Bond Index Fund ETF Shares iShares MSCI USA Quality Factor ETF
Category Short-Term Bond Large Blend
Issuer Vanguard iShares
AUM 47.88B 23.93B
Avg. Return 3.12% 13.42%
Div. Yield 1.89% 1.29%
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 MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.

VCSH’s dividend yield is 0.60% higher than that of QUAL (1.89% vs. 1.29%). Also, VCSH yielded on average 10.30% less per year over the past decade (3.12% vs. 13.42%). The expense ratio of VCSH is 0.10 percentage points lower than QUAL’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.

QUAL - Holdings

QUAL Holdings Weight
Facebook Inc Class A 4.77%
Nike Inc Class B 4.05%
Microsoft Corp 3.54%
Apple Inc 3.52%
Johnson & Johnson 2.99%
BlackRock Inc 2.87%
Target Corp 2.8%
Mastercard Inc Class A 2.72%
NVIDIA Corp 2.71%
Alphabet Inc Class A 2.49%

QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.

BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.

Risk Analysis

VCSH QUAL
Mean Return 0.24 0
R-squared 37.53 0
Std. Deviation 2.34 0
Alpha 0.93 0
Beta 0.48 0
Sharpe Ratio 0.97 0
Treynor Ratio 4.75 0

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

The iShares MSCI USA Quality Factor ETF (QUAL) has a Sharpe Ratio of 0 with a R-squared of 0 and a Mean Return of 0. Its Treynor Ratio is 0 while QUAL’s Standard Deviation is 0. Furthermore, the fund has a Alpha of 0 and a Beta of 0.

VCSH’s Mean Return is 0.24 points higher than that of QUAL and its R-squared is 37.53 points higher. With a Standard Deviation of 2.34, VCSH is slightly more volatile than QUAL. The Alpha and Beta of VCSH are 0.93 points higher and 0.48 points higher than QUAL’s Alpha and Beta.

Performance

Annual Returns

VCSH vs. QUAL - Annual Returns

Year VCSH QUAL
2020 5.08% 16.96%
2019 6.85% 34.14%
2018 0.91% -5.77%
2017 2.45% 22.26%
2016 2.63% 9.18%
2015 1.25% 5.56%
2014 1.96% 11.62%
2013 1.37% 0.0%
2012 5.74% 0.0%
2011 2.94% 0.0%
2010 5.51% 0.0%

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 2019 was the strongest year for QUAL, returning 34.14% on an annual basis. The poorest year for QUAL in the last ten years was 2018, with a yield of -5.77%. Most years the iShares MSCI USA Quality Factor ETF has given investors modest returns, such as in 2010, 2015, and 2016, when gains were 0.0%, 5.56%, and 9.18% respectively.

Portfolio Growth

VCSH vs. QUAL - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VCSH $10,000 $12,298 3.12%
QUAL $10,000 $23,251 13.42%

A $10,000 investment in VCSH would have resulted in a final balance of $12,298. This is a profit of $2,298 over 7 years and amounts to a compound annual growth rate (CAGR) of 3.12%.

With a $10,000 investment in QUAL, the end total would have been $23,251. This equates to a $13,251 profit over 7 years and a compound annual growth rate (CAGR) of 13.42%.

VCSH’s CAGR is 10.30 percentage points lower than that of QUAL and as a result, would have yielded $10,953 less on a $10,000 investment. Thus, VCSH performed worse than QUAL by 10.30% annually.


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