The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. VCSH is a Vanguard Short-Term Bond fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between VCSH and VMBS? And which fund is better?
VCSH and VMBS have the same expense ratio: 0.05%. VCSH is mostly comprised of BBB bonds and VMBS has a high exposure to AAA bond. Overall, VCSH has provided higher returns than VMBS over the past ten years.
In this article, we’ll compare VCSH vs. VMBS. We’ll look at performance and portfolio growth, as well as at their holdings and risk metrics. Moreover, I’ll also discuss VCSH’s and VMBS’s industry exposure, fund composition, and annual returns and examine how these affect their overall returns.
Summary
| VCSH | VMBS | |
| Name | Vanguard Short-Term Corporate Bond Index Fund ETF Shares | Vanguard Mortgage-Backed Securities Index Fund ETF Shares |
| Category | Short-Term Bond | Intermediate Government |
| Issuer | Vanguard | Vanguard |
| AUM | 47.88B | 16.61B |
| Avg. Return | 3.12% | 2.89% |
| Div. Yield | 1.89% | 1.23% |
| Expense Ratio | 0.05% | 0.05% |
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 Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) is a Intermediate Government fund that is issued by Vanguard. It currently has 16.61B total assets under management and has yielded an average annual return of 2.89% over the past 10 years. The fund has a dividend yield of 1.23% with an expense ratio of 0.05%.
VCSH’s dividend yield is 0.66% higher than that of VMBS (1.89% vs. 1.23%). Also, VCSH yielded on average 0.23% more per year over the past decade (3.12% vs. 2.89%). VCSH and VMBS have the same expense ratio: 0.05%.
Fund Composition
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.
| VMBS Bond Sectors | Weight |
| AAA | 100.01% |
| Below B | 0.0% |
| B | 0.0% |
| BB | 0.0% |
| BBB | 0.0% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
| Others | -0.01% |
VMBS’s Top Bond Sectors are ratings of AAA, Below B, B, BB, and BBB at 100.01%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.
Risk Analysis
| VCSH | VMBS | |
| Mean Return | 0.24 | 0.21 |
| R-squared | 37.53 | 65.78 |
| Std. Deviation | 2.34 | 2.02 |
| Alpha | 0.93 | 0.37 |
| Beta | 0.48 | 0.54 |
| Sharpe Ratio | 0.97 | 0.94 |
| Treynor Ratio | 4.75 | 3.47 |
The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) has a Mean Return of 0.24 with a Sharpe Ratio of 0.97 and a Standard Deviation of 2.34. Its R-squared is 37.53 while VCSH’s Treynor Ratio is 4.75. Furthermore, the fund has a Beta of 0.48 and a Alpha of 0.93.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Sharpe Ratio of 0.94 with a Treynor Ratio of 3.47 and a Mean Return of 0.21. Its Alpha is 0.37 while VMBS’s Beta is 0.54. Furthermore, the fund has a Standard Deviation of 2.02 and a R-squared of 65.78.
VCSH’s Mean Return is 0.03 points higher than that of VMBS and its R-squared is 28.25 points lower. With a Standard Deviation of 2.34, VCSH is slightly more volatile than VMBS. The Alpha and Beta of VCSH are 0.56 points higher and 0.06 points lower than VMBS’s Alpha and Beta.
Performance
Annual Returns
| Year | VCSH | VMBS |
| 2020 | 5.08% | 3.77% |
| 2019 | 6.85% | 6.17% |
| 2018 | 0.91% | 0.87% |
| 2017 | 2.45% | 2.37% |
| 2016 | 2.63% | 1.43% |
| 2015 | 1.25% | 1.43% |
| 2014 | 1.96% | 5.81% |
| 2013 | 1.37% | -1.28% |
| 2012 | 5.74% | 2.47% |
| 2011 | 2.94% | 5.89% |
| 2010 | 5.51% | 5.24% |
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 VMBS, returning 6.17% on an annual basis. The poorest year for VMBS in the last ten years was 2013, with a yield of -1.28%. Most years the Vanguard Mortgage-Backed Securities Index Fund ETF Shares has given investors modest returns, such as in 2017, 2012, and 2020, when gains were 2.37%, 2.47%, and 3.77% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VCSH | $10,000 | $13,569 | 3.12% |
| VMBS | $10,000 | $13,265 | 2.89% |
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 VMBS, the end total would have been $13,265. This equates to a $3,265 profit over 10 years and a compound annual growth rate (CAGR) of 2.89%.
VCSH’s CAGR is 0.23 percentage points higher than that of VMBS and as a result, would have yielded $304 more on a $10,000 investment. Thus, VCSH outperformed VMBS by 0.23% annually.
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