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VEU vs. VMBS: What’s The Difference?

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

The expense ratio of VEU is 0.03 percentage points higher than VMBS’s (0.08% vs. 0.05%). VEU also has a high exposure to the financial services sector while VMBS is mostly comprised of AAA bonds. Overall, VEU has provided higher returns than VMBS over the past ten years.

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

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Summary

VEUVMBS
NameVanguard FTSE All-World ex-US Index Fund ETF SharesVanguard Mortgage-Backed Securities Index Fund ETF Shares
CategoryForeign Large BlendIntermediate Government
IssuerVanguardVanguard
AUM53.64B16.61B
Avg. Return6.64%2.89%
Div. Yield2.31%1.23%
Expense Ratio0.08%0.05%

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 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%.

VEU’s dividend yield is 1.08% higher than that of VMBS (2.31% vs. 1.23%). Also, VEU yielded on average 3.75% more per year over the past decade (6.64% vs. 2.89%). The expense ratio of VEU is 0.03 percentage points higher than VMBS’s (0.08% vs. 0.05%).

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Fund Composition

Holdings

VEU - Holdings

VEU HoldingsWeight
Tencent Holdings Ltd1.57%
Alibaba Group Holding Ltd Ordinary Shares1.4%
Nestle SA1.22%
Taiwan Semiconductor Manufacturing Co Ltd0.98%
ASML Holding NV0.95%
Taiwan Semiconductor Manufacturing Co Ltd ADR0.91%
Roche Holding AG0.91%
Toyota Motor Corp0.75%
LVMH Moet Hennessy Louis Vuitton SE0.68%
Novartis AG0.67%

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%.

VMBS - Holdings

VMBS Bond SectorsWeight
AAA100.01%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%
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.

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Risk Analysis

VEUVMBS
Mean Return0.560.21
R-squared98.4465.78
Std. Deviation15.082.02
Alpha0.280.37
Beta0.990.54
Sharpe Ratio0.40.94
Treynor Ratio5.123.47

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

The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Sharpe Ratio of 0.94 with a Mean Return of 0.21 and a Treynor Ratio of 3.47. Its R-squared is 65.78 while VMBS’s Standard Deviation is 2.02. Furthermore, the fund has a Beta of 0.54 and a Alpha of 0.37.

VEU’s Mean Return is 0.35 points higher than that of VMBS and its R-squared is 32.66 points higher. With a Standard Deviation of 15.08, VEU is slightly more volatile than VMBS. The Alpha and Beta of VEU are 0.09 points lower and 0.45 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

VEU vs. VMBS - Annual Returns

YearVEUVMBS
202011.39%3.77%
201921.63%6.17%
2018-13.97%0.87%
201727.27%2.37%
20164.77%1.43%
2015-4.67%1.43%
2014-4.05%5.81%
201314.5%-1.28%
201218.55%2.47%
2011-14.25%5.89%
201011.85%5.24%

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 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

VEU vs. VMBS - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VEU$10,000$16,5466.64%
VMBS$10,000$13,2652.89%

A $10,000 investment in VEU would have resulted in a final balance of $16,546. This is a profit of $6,546 over 10 years and amounts to a compound annual growth rate (CAGR) of 6.64%.

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%.

VEU’s CAGR is 3.75 percentage points higher than that of VMBS and as a result, would have yielded $3,281 more on a $10,000 investment. Thus, VEU outperformed VMBS by 3.75% annually.


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