VEU vs. HYG: What’s The Difference?

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) are both among the Top 100 ETFs. VEU is a Vanguard Foreign Large Blend fund and HYG is a iShares High Yield Bond fund. So, what’s the difference between VEU and HYG? And which fund is better?

The expense ratio of VEU is 0.40 percentage points lower than HYG’s (0.08% vs. 0.48%). VEU also has a high exposure to the financial services sector while HYG is mostly comprised of BB bonds. Overall, VEU has provided higher returns than HYG over the past ten years.

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

Summary

VEU HYG
Name Vanguard FTSE All-World ex-US Index Fund ETF Shares iShares iBoxx $ High Yield Corporate Bond ETF
Category Foreign Large Blend High Yield Bond
Issuer Vanguard iShares
AUM 53.64B 20.03B
Avg. Return 6.64% 6.42%
Div. Yield 2.31% 4.44%
Expense Ratio 0.08% 0.48%

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) is a Foreign Large Blend fund that is issued by Vanguard. It currently has 53.64B total assets under management and has yielded an average annual return of 6.64% over the past 10 years. The fund has a dividend yield of 2.31% with an expense ratio of 0.08%.

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is a High Yield Bond fund that is issued by iShares. It currently has 20.03B total assets under management and has yielded an average annual return of 6.42% over the past 10 years. The fund has a dividend yield of 4.44% with an expense ratio of 0.48%.

VEU’s dividend yield is 2.13% lower than that of HYG (2.31% vs. 4.44%). Also, VEU yielded on average 0.22% more per year over the past decade (6.64% vs. 6.42%). The expense ratio of VEU is 0.40 percentage points lower than HYG’s (0.08% vs. 0.48%).

Fund Composition

Holdings

VEU - Holdings

VEU Holdings Weight
Tencent Holdings Ltd 1.57%
Alibaba Group Holding Ltd Ordinary Shares 1.4%
Nestle SA 1.22%
Taiwan Semiconductor Manufacturing Co Ltd 0.98%
ASML Holding NV 0.95%
Taiwan Semiconductor Manufacturing Co Ltd ADR 0.91%
Roche Holding AG 0.91%
Toyota Motor Corp 0.75%
LVMH Moet Hennessy Louis Vuitton SE 0.68%
Novartis AG 0.67%

VEU’s Top Holdings are Tencent Holdings Ltd, Alibaba Group Holding Ltd Ordinary Shares, Nestle SA, Taiwan Semiconductor Manufacturing Co Ltd, and ASML Holding NV at 1.57%, 1.4%, 1.22%, 0.98%, and 0.95%.

Taiwan Semiconductor Manufacturing Co Ltd ADR (0.91%), Roche Holding AG (0.91%), and Toyota Motor Corp (0.75%) have a slightly smaller but still significant weight. LVMH Moet Hennessy Louis Vuitton SE and Novartis AG are also represented in the VEU’s holdings at 0.68% and 0.67%.

HYG - Holdings

HYG Bond Sectors Weight
BB 56.53%
B 31.27%
Below B 11.4%
BBB 0.61%
AAA 0.28%
A 0.0%
AA 0.0%
US Government 0.0%
Others -0.09%

HYG’s Top Bond Sectors are ratings of BB, B, Below B, BBB, and AAA at 56.53%, 31.27%, 11.4%, 0.61%, and 0.28%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.

Risk Analysis

VEU HYG
Mean Return 0.56 0.46
R-squared 98.44 4.1
Std. Deviation 15.08 6.96
Alpha 0.28 3.58
Beta 0.99 0.48
Sharpe Ratio 0.4 0.7
Treynor Ratio 5.12 10.01

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) has a Sharpe Ratio of 0.4 with a Mean Return of 0.56 and a Beta of 0.99. Its Standard Deviation is 15.08 while VEU’s Alpha is 0.28. Furthermore, the fund has a Treynor Ratio of 5.12 and a R-squared of 98.44.

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a Mean Return of 0.46 with a Alpha of 3.58 and a R-squared of 4.1. Its Standard Deviation is 6.96 while HYG’s Sharpe Ratio is 0.7. Furthermore, the fund has a Beta of 0.48 and a Treynor Ratio of 10.01.

VEU’s Mean Return is 0.10 points higher than that of HYG and its R-squared is 94.34 points higher. With a Standard Deviation of 15.08, VEU is slightly more volatile than HYG. The Alpha and Beta of VEU are 3.30 points lower and 0.51 points higher than HYG’s Alpha and Beta.

Performance

Annual Returns

VEU vs. HYG - Annual Returns

Year VEU HYG
2020 11.39% 4.12%
2019 21.63% 14.23%
2018 -13.97% -1.93%
2017 27.27% 6.09%
2016 4.77% 13.92%
2015 -4.67% -5.55%
2014 -4.05% 2.0%
2013 14.5% 5.9%
2012 18.55% 13.83%
2011 -14.25% 5.89%
2010 11.85% 12.07%

VEU had its best year in 2017 with an annual return of 27.27%. VEU’s worst year over the past decade yielded -14.25% and occurred in 2011. In most years the Vanguard FTSE All-World ex-US Index Fund ETF Shares provided moderate returns such as in 2016, 2020, and 2010 where annual returns amounted to 4.77%, 11.39%, and 11.85% respectively.

The year 2019 was the strongest year for HYG, returning 14.23% on an annual basis. The poorest year for HYG in the last ten years was 2015, with a yield of -5.55%. Most years the iShares iBoxx $ High Yield Corporate Bond ETF has given investors modest returns, such as in 2011, 2013, and 2017, when gains were 5.89%, 5.9%, and 6.09% respectively.

Portfolio Growth

VEU vs. HYG - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VEU $10,000 $18,507 6.64%
HYG $10,000 $19,427 6.42%

A $10,000 investment in VEU would have resulted in a final balance of $18,507. This is a profit of $8,507 over 11 years and amounts to a compound annual growth rate (CAGR) of 6.64%.

With a $10,000 investment in HYG, the end total would have been $19,427. This equates to a $9,427 profit over 11 years and a compound annual growth rate (CAGR) of 6.42%.

VEU’s CAGR is 0.22 percentage points higher than that of HYG and as a result, would have yielded $920 less on a $10,000 investment. Thus, VEU outperformed HYG by 0.22% annually.


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