VCSH vs. SHY: What’s The Difference?

The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) and the iShares 1-3 Year Treasury Bond ETF (SHY) are both among the Top 100 ETFs. VCSH is a Vanguard Short-Term Bond fund and SHY is a iShares Short Government fund. So, what’s the difference between VCSH and SHY? And which fund is better?

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

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

Summary

VCSH SHY
Name Vanguard Short-Term Corporate Bond Index Fund ETF Shares iShares 1-3 Year Treasury Bond ETF
Category Short-Term Bond Short Government
Issuer Vanguard iShares
AUM 47.88B 19.51B
Avg. Return 3.12% 1.27%
Div. Yield 1.89% 0.46%
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 1-3 Year Treasury Bond ETF (SHY) is a Short Government fund that is issued by iShares. It currently has 19.51B total assets under management and has yielded an average annual return of 1.27% over the past 10 years. The fund has a dividend yield of 0.46% with an expense ratio of 0.15%.

VCSH’s dividend yield is 1.43% higher than that of SHY (1.89% vs. 0.46%). Also, VCSH yielded on average 1.84% more per year over the past decade (3.12% vs. 1.27%). The expense ratio of VCSH is 0.10 percentage points lower than SHY’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.

SHY - Holdings

SHY Bond Sectors Weight
AAA 99.67%
Others 0.33%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

SHY’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.67%, 0.33%, 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 SHY
Mean Return 0.24 0.09
R-squared 37.53 39.11
Std. Deviation 2.34 0.89
Alpha 0.93 -0.03
Beta 0.48 0.18
Sharpe Ratio 0.97 0.54
Treynor Ratio 4.75 2.6

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

The iShares 1-3 Year Treasury Bond ETF (SHY) has a Alpha of -0.03 with a Beta of 0.18 and a R-squared of 39.11. Its Standard Deviation is 0.89 while SHY’s Treynor Ratio is 2.6. Furthermore, the fund has a Sharpe Ratio of 0.54 and a Mean Return of 0.09.

VCSH’s Mean Return is 0.15 points higher than that of SHY and its R-squared is 1.58 points lower. With a Standard Deviation of 2.34, VCSH is slightly more volatile than SHY. The Alpha and Beta of VCSH are 0.96 points higher and 0.30 points higher than SHY’s Alpha and Beta.

Performance

Annual Returns

VCSH vs. SHY - Annual Returns

Year VCSH SHY
2020 5.08% 3.01%
2019 6.85% 3.42%
2018 0.91% 1.45%
2017 2.45% 0.27%
2016 2.63% 0.75%
2015 1.25% 0.43%
2014 1.96% 0.48%
2013 1.37% 0.23%
2012 5.74% 0.31%
2011 2.94% 1.43%
2010 5.51% 2.23%

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 SHY, returning 3.42% on an annual basis. The poorest year for SHY in the last ten years was 2013, with a yield of 0.23%. Most years the iShares 1-3 Year Treasury Bond ETF has given investors modest returns, such as in 2014, 2016, and 2011, when gains were 0.48%, 0.75%, and 1.43% respectively.

Portfolio Growth

VCSH vs. SHY - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VCSH $10,000 $13,569 3.12%
SHY $10,000 $11,235 1.27%

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 SHY, the end total would have been $11,235. This equates to a $1,235 profit over 10 years and a compound annual growth rate (CAGR) of 1.27%.

VCSH’s CAGR is 1.84 percentage points higher than that of SHY and as a result, would have yielded $2,334 more on a $10,000 investment. Thus, VCSH outperformed SHY by 1.84% annually.


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