VGK vs. SHY: What’s The Difference?

The Vanguard FTSE Europe Index Fund ETF Shares (VGK) and the iShares 1-3 Year Treasury Bond ETF (SHY) are both among the Top 100 ETFs. VGK is a Vanguard Europe Stock fund and SHY is a iShares Short Government fund. So, what’s the difference between VGK and SHY? And which fund is better?

The expense ratio of VGK is 0.07 percentage points lower than SHY’s (0.08% vs. 0.15%). VGK also has a high exposure to the financial services sector while SHY is mostly comprised of AAA bonds. Overall, VGK has provided higher returns than SHY over the past 11 years.

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

Summary

VGK SHY
Name Vanguard FTSE Europe Index Fund ETF Shares iShares 1-3 Year Treasury Bond ETF
Category Europe Stock Short Government
Issuer Vanguard iShares
AUM 25.7B 19.51B
Avg. Return 6.68% 1.27%
Div. Yield 2.52% 0.46%
Expense Ratio 0.08% 0.15%

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 1-3 Year Treasury Bond ETF (SHY) is a Short Government fund that is issued by iShares. It currently has 19.51B total assets under management and has yielded an average annual return of 1.27% over the past 10 years. The fund has a dividend yield of 0.46% with an expense ratio of 0.15%.

VGK’s dividend yield is 2.06% higher than that of SHY (2.52% vs. 0.46%). Also, VGK yielded on average 5.41% more per year over the past decade (6.68% vs. 1.27%). The expense ratio of VGK is 0.07 percentage points lower than SHY’s (0.08% vs. 0.15%).

Fund Composition

Holdings

VGK - Holdings

VGK Holdings Weight
Nestle SA 2.82%
ASML Holding NV 2.2%
Roche Holding AG 2.13%
LVMH Moet Hennessy Louis Vuitton SE 1.58%
Novartis AG 1.55%
AstraZeneca PLC 1.27%
SAP SE 1.25%
Unilever PLC 1.23%
Novo Nordisk A/S B 1.09%
Siemens AG 0.96%

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%.

SHY - Holdings

SHY Bond Sectors Weight
AAA 99.67%
Others 0.33%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

SHY’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.67%, 0.33%, 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

VGK SHY
Mean Return 0.61 0.09
R-squared 92.76 39.11
Std. Deviation 16.65 0.89
Alpha 0.45 -0.03
Beta 1.06 0.18
Sharpe Ratio 0.4 0.54
Treynor Ratio 5.12 2.6

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

The iShares 1-3 Year Treasury Bond ETF (SHY) has a Alpha of -0.03 with a Beta of 0.18 and a Sharpe Ratio of 0.54. Its Mean Return is 0.09 while SHY’s R-squared is 39.11. Furthermore, the fund has a Standard Deviation of 0.89 and a Treynor Ratio of 2.6.

VGK’s Mean Return is 0.52 points higher than that of SHY and its R-squared is 53.65 points higher. With a Standard Deviation of 16.65, VGK is slightly more volatile than SHY. The Alpha and Beta of VGK are 0.48 points higher and 0.88 points higher than SHY’s Alpha and Beta.

Performance

Annual Returns

VGK vs. SHY - Annual Returns

Year VGK SHY
2020 6.5% 3.01%
2019 24.26% 3.42%
2018 -14.79% 1.45%
2017 27.06% 0.27%
2016 -0.59% 0.75%
2015 -1.87% 0.43%
2014 -6.56% 0.48%
2013 24.93% 0.23%
2012 21.01% 0.31%
2011 -11.49% 1.43%
2010 5.01% 2.23%

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 SHY, returning 3.42% on an annual basis. The poorest year for SHY in the last ten years was 2013, with a yield of 0.23%. Most years the iShares 1-3 Year Treasury Bond ETF has given investors modest returns, such as in 2014, 2016, and 2011, when gains were 0.48%, 0.75%, and 1.43% respectively.

Portfolio Growth

VGK vs. SHY - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VGK $10,000 $18,350 6.68%
SHY $10,000 $11,486 1.27%

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 SHY, the end total would have been $11,486. This equates to a $1,486 profit over 11 years and a compound annual growth rate (CAGR) of 1.27%.

VGK’s CAGR is 5.41 percentage points higher than that of SHY and as a result, would have yielded $6,864 more on a $10,000 investment. Thus, VGK outperformed SHY by 5.41% annually.


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