VEU vs. MBB: What’s The Difference?

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) and the iShares MBS ETF (MBB) are both among the Top 100 ETFs. VEU is a Vanguard Foreign Large Blend fund and MBB is a iShares Intermediate Government fund. So, what’s the difference between VEU and MBB? And which fund is better?

The expense ratio of VEU is 0.02 percentage points higher than MBB’s (0.08% vs. 0.06%). VEU also has a high exposure to the financial services sector while MBB is mostly comprised of AAA bonds. Overall, VEU has provided higher returns than MBB over the past ten years.

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

Summary

VEU MBB
Name Vanguard FTSE All-World ex-US Index Fund ETF Shares iShares MBS ETF
Category Foreign Large Blend Intermediate Government
Issuer Vanguard iShares
AUM 53.64B 25.69B
Avg. Return 6.64% 3.08%
Div. Yield 2.31% 1.88%
Expense Ratio 0.08% 0.06%

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 MBS ETF (MBB) is a Intermediate Government fund that is issued by iShares. It currently has 25.69B total assets under management and has yielded an average annual return of 3.08% over the past 10 years. The fund has a dividend yield of 1.88% with an expense ratio of 0.06%.

VEU’s dividend yield is 0.43% higher than that of MBB (2.31% vs. 1.88%). Also, VEU yielded on average 3.56% more per year over the past decade (6.64% vs. 3.08%). The expense ratio of VEU is 0.02 percentage points higher than MBB’s (0.08% vs. 0.06%).

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%.

MBB - Holdings

MBB Bond Sectors Weight
AAA 99.51%
Others 0.49%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

MBB’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.51%, 0.49%, 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

VEU MBB
Mean Return 0.56 0.2
R-squared 98.44 74.38
Std. Deviation 15.08 2.12
Alpha 0.28 0.14
Beta 0.99 0.6
Sharpe Ratio 0.4 0.87
Treynor Ratio 5.12 3.02

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

The iShares MBS ETF (MBB) has a R-squared of 74.38 with a Alpha of 0.14 and a Beta of 0.6. Its Mean Return is 0.2 while MBB’s Standard Deviation is 2.12. Furthermore, the fund has a Treynor Ratio of 3.02 and a Sharpe Ratio of 0.87.

VEU’s Mean Return is 0.36 points higher than that of MBB and its R-squared is 24.06 points higher. With a Standard Deviation of 15.08, VEU is slightly more volatile than MBB. The Alpha and Beta of VEU are 0.14 points higher and 0.39 points higher than MBB’s Alpha and Beta.

Performance

Annual Returns

VEU vs. MBB - Annual Returns

Year VEU MBB
2020 11.39% 4.03%
2019 21.63% 6.27%
2018 -13.97% 0.81%
2017 27.27% 2.37%
2016 4.77% 1.28%
2015 -4.67% 1.28%
2014 -4.05% 6.16%
2013 14.5% -1.92%
2012 18.55% 2.23%
2011 -14.25% 5.88%
2010 11.85% 5.44%

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 MBB, returning 6.27% on an annual basis. The poorest year for MBB in the last ten years was 2013, with a yield of -1.92%. Most years the iShares MBS ETF has given investors modest returns, such as in 2012, 2017, and 2020, when gains were 2.23%, 2.37%, and 4.03% respectively.

Portfolio Growth

VEU vs. MBB - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VEU $10,000 $18,507 6.64%
MBB $10,000 $13,906 3.08%

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 MBB, the end total would have been $13,906. This equates to a $3,906 profit over 11 years and a compound annual growth rate (CAGR) of 3.08%.

VEU’s CAGR is 3.56 percentage points higher than that of MBB and as a result, would have yielded $4,601 more on a $10,000 investment. Thus, VEU outperformed MBB by 3.56% annually.


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