VEA vs. VMBS: What’s The Difference?

The Vanguard FTSE Developed Markets Index Fund ETF Shares (VEA) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. VEA is a Vanguard Foreign Large Blend fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between VEA and VMBS? And which fund is better?

VEA and VMBS have the same expense ratio: 0.05%. VEA also has a high exposure to the financial services sector while VMBS is mostly comprised of AAA bonds. Overall, VEA has provided higher returns than VMBS over the past ten years.

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

Summary

VEA VMBS
Name Vanguard FTSE Developed Markets Index Fund ETF Shares Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Foreign Large Blend Intermediate Government
Issuer Vanguard Vanguard
AUM 157.48B 16.61B
Avg. Return 7.05% 2.89%
Div. Yield 2.49% 1.23%
Expense Ratio 0.05% 0.05%

The Vanguard FTSE Developed Markets Index Fund ETF Shares (VEA) is a Foreign Large Blend fund that is issued by Vanguard. It currently has 157.48B total assets under management and has yielded an average annual return of 7.05% over the past 10 years. The fund has a dividend yield of 2.49% 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%.

VEA’s dividend yield is 1.26% higher than that of VMBS (2.49% vs. 1.23%). Also, VEA yielded on average 4.16% more per year over the past decade (7.05% vs. 2.89%). VEA and VMBS have the same expense ratio: 0.05%.

Fund Composition

Holdings

VEA - Holdings

VEA Holdings Weight
Nestle SA 1.5%
Samsung Electronics Co Ltd 1.4%
ASML Holding NV 1.16%
Roche Holding AG 1.1%
Toyota Motor Corp 0.92%
LVMH Moet Hennessy Louis Vuitton SE 0.84%
Novartis AG 0.82%
Shopify Inc A 0.7%
AstraZeneca PLC 0.67%
SAP SE 0.66%

VEA’s Top Holdings are Nestle SA, Samsung Electronics Co Ltd, ASML Holding NV, Roche Holding AG, and Toyota Motor Corp at 1.5%, 1.4%, 1.16%, 1.1%, and 0.92%.

LVMH Moet Hennessy Louis Vuitton SE (0.84%), Novartis AG (0.82%), and Shopify Inc A (0.7%) have a slightly smaller but still significant weight. AstraZeneca PLC and SAP SE are also represented in the VEA’s holdings at 0.67% and 0.66%.

VMBS - Holdings

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.

Performance

Annual Returns

VEA vs. VMBS - Annual Returns

Year VEA VMBS
2020 10.29% 3.77%
2019 22.08% 6.17%
2018 -14.47% 0.87%
2017 26.44% 2.37%
2016 2.51% 1.43%
2015 -0.21% 1.43%
2014 -5.71% 5.81%
2013 22.12% -1.28%
2012 18.6% 2.47%
2011 -12.57% 5.89%
2010 8.47% 5.24%

VEA had its best year in 2017 with an annual return of 26.44%. VEA’s worst year over the past decade yielded -14.47% and occurred in 2018. In most years the Vanguard FTSE Developed Markets Index Fund ETF Shares provided moderate returns such as in 2016, 2010, and 2020 where annual returns amounted to 2.51%, 8.47%, and 10.29% 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

VEA vs. VMBS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VEA $10,000 $17,784 7.05%
VMBS $10,000 $13,265 2.89%

A $10,000 investment in VEA would have resulted in a final balance of $17,784. This is a profit of $7,784 over 10 years and amounts to a compound annual growth rate (CAGR) of 7.05%.

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%.

VEA’s CAGR is 4.16 percentage points higher than that of VMBS and as a result, would have yielded $4,519 more on a $10,000 investment. Thus, VEA outperformed VMBS by 4.16% annually.


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