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VGK vs. HYG: What’s The Difference?

The Vanguard FTSE Europe Index Fund ETF Shares (VGK) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) are both among the Top 100 ETFs. VGK is a Vanguard Europe Stock fund and HYG is a iShares High Yield Bond fund. So, what’s the difference between VGK and HYG? And which fund is better?

The expense ratio of VGK is 0.40 percentage points lower than HYG’s (0.08% vs. 0.48%). VGK also has a high exposure to the financial services sector while HYG is mostly comprised of BB bonds. Overall, VGK has provided higher returns than HYG over the past 11 years.

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

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Summary

VGKHYG
NameVanguard FTSE Europe Index Fund ETF SharesiShares iBoxx $ High Yield Corporate Bond ETF
CategoryEurope StockHigh Yield Bond
IssuerVanguardiShares
AUM25.7B20.03B
Avg. Return6.68%6.42%
Div. Yield2.52%4.44%
Expense Ratio0.08%0.48%

The Vanguard FTSE Europe Index Fund ETF Shares (VGK) is a Europe Stock fund that is issued by Vanguard. It currently has 25.7B total assets under management and has yielded an average annual return of 6.68% over the past 10 years. The fund has a dividend yield of 2.52% 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%.

VGK’s dividend yield is 1.92% lower than that of HYG (2.52% vs. 4.44%). Also, VGK yielded on average 0.26% more per year over the past decade (6.68% vs. 6.42%). The expense ratio of VGK is 0.40 percentage points lower than HYG’s (0.08% vs. 0.48%).

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Fund Composition

Holdings

VGK - Holdings

VGK HoldingsWeight
Nestle SA2.82%
ASML Holding NV2.2%
Roche Holding AG2.13%
LVMH Moet Hennessy Louis Vuitton SE1.58%
Novartis AG1.55%
AstraZeneca PLC1.27%
SAP SE1.25%
Unilever PLC1.23%
Novo Nordisk A/S B1.09%
Siemens AG0.96%

VGK’s Top Holdings are Nestle SA, ASML Holding NV, Roche Holding AG, LVMH Moet Hennessy Louis Vuitton SE, and Novartis AG at 2.82%, 2.2%, 2.13%, 1.58%, and 1.55%.

AstraZeneca PLC (1.27%), SAP SE (1.25%), and Unilever PLC (1.23%) have a slightly smaller but still significant weight. Novo Nordisk A/S B and Siemens AG are also represented in the VGK’s holdings at 1.09% and 0.96%.

HYG - Holdings

HYG Bond SectorsWeight
BB56.53%
B31.27%
Below B11.4%
BBB0.61%
AAA0.28%
A0.0%
AA0.0%
US Government0.0%
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.

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Risk Analysis

VGKHYG
Mean Return0.610.46
R-squared92.764.1
Std. Deviation16.656.96
Alpha0.453.58
Beta1.060.48
Sharpe Ratio0.40.7
Treynor Ratio5.1210.01

The Vanguard FTSE Europe Index Fund ETF Shares (VGK) has a Sharpe Ratio of 0.4 with a Mean Return of 0.61 and a Treynor Ratio of 5.12. Its Alpha is 0.45 while VGK’s R-squared is 92.76. Furthermore, the fund has a Standard Deviation of 16.65 and a Beta of 1.06.

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

VGK’s Mean Return is 0.15 points higher than that of HYG and its R-squared is 88.66 points higher. With a Standard Deviation of 16.65, VGK is slightly more volatile than HYG. The Alpha and Beta of VGK are 3.13 points lower and 0.58 points higher than HYG’s Alpha and Beta.

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Performance

Annual Returns

VGK vs. HYG - Annual Returns

YearVGKHYG
20206.5%4.12%
201924.26%14.23%
2018-14.79%-1.93%
201727.06%6.09%
2016-0.59%13.92%
2015-1.87%-5.55%
2014-6.56%2.0%
201324.93%5.9%
201221.01%13.83%
2011-11.49%5.89%
20105.01%12.07%

VGK had its best year in 2017 with an annual return of 27.06%. VGK’s worst year over the past decade yielded -14.79% and occurred in 2018. In most years the Vanguard FTSE Europe Index Fund ETF Shares provided moderate returns such as in 2016, 2010, and 2020 where annual returns amounted to -0.59%, 5.01%, and 6.5% 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

VGK vs. HYG - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VGK$10,000$18,3506.68%
HYG$10,000$19,4276.42%

A $10,000 investment in VGK would have resulted in a final balance of $18,350. This is a profit of $8,350 over 11 years and amounts to a compound annual growth rate (CAGR) of 6.68%.

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%.

VGK’s CAGR is 0.26 percentage points higher than that of HYG and as a result, would have yielded $1,077 less on a $10,000 investment. Thus, VGK outperformed HYG by 0.26% annually.


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