VGK vs. TLT: What’s The Difference?

The Vanguard FTSE Europe Index Fund ETF Shares (VGK) and the iShares 20+ Year Treasury Bond ETF (TLT) are both among the Top 100 ETFs. VGK is a Vanguard Europe Stock fund and TLT is a iShares Long Government fund. So, what’s the difference between VGK and TLT? And which fund is better?

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

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

Summary

VGK TLT
Name Vanguard FTSE Europe Index Fund ETF Shares iShares 20+ Year Treasury Bond ETF
Category Europe Stock Long Government
Issuer Vanguard iShares
AUM 25.7B 15.15B
Avg. Return 6.68% 9.00%
Div. Yield 2.52% 1.5%
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 20+ Year Treasury Bond ETF (TLT) is a Long Government fund that is issued by iShares. It currently has 15.15B total assets under management and has yielded an average annual return of 9.00% over the past 10 years. The fund has a dividend yield of 1.5% with an expense ratio of 0.15%.

VGK’s dividend yield is 1.02% higher than that of TLT (2.52% vs. 1.5%). Also, VGK yielded on average 2.32% less per year over the past decade (6.68% vs. 9.00%). The expense ratio of VGK is 0.07 percentage points lower than TLT’s (0.08% vs. 0.15%).

FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).

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%.

TLT - Holdings

TLT Bond Sectors Weight
AAA 100.0%
Others 0.0%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

TLT’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 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.

NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).

Risk Analysis

VGK TLT
Mean Return 0.61 0.63
R-squared 92.76 68.76
Std. Deviation 16.65 12.76
Alpha 0.45 -2.83
Beta 1.06 3.54
Sharpe Ratio 0.4 0.55
Treynor Ratio 5.12 1.82

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

The iShares 20+ Year Treasury Bond ETF (TLT) has a Standard Deviation of 12.76 with a Treynor Ratio of 1.82 and a Mean Return of 0.63. Its R-squared is 68.76 while TLT’s Beta is 3.54. Furthermore, the fund has a Alpha of -2.83 and a Sharpe Ratio of 0.55.

VGK’s Mean Return is 0.02 points lower than that of TLT and its R-squared is 24.00 points higher. With a Standard Deviation of 16.65, VGK is slightly more volatile than TLT. The Alpha and Beta of VGK are 3.28 points higher and 2.48 points lower than TLT’s Alpha and Beta.

BTW: Uncorrelated crypto assets such as Bitcoin can serve as a hedge and mitigate risk. I've allocated around 5% of my portfolio to crypto assets through Coinbase - the simplest and cheapest broker I've found! Click here to read more (link to Coinbase).

Performance

Annual Returns

VGK vs. TLT - Annual Returns

Year VGK TLT
2020 6.5% 17.92%
2019 24.26% 14.93%
2018 -14.79% -2.07%
2017 27.06% 8.92%
2016 -0.59% 1.36%
2015 -1.87% -1.65%
2014 -6.56% 27.35%
2013 24.93% -13.91%
2012 21.01% 3.25%
2011 -11.49% 33.6%
2010 5.01% 9.25%

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 2011 was the strongest year for TLT, returning 33.6% on an annual basis. The poorest year for TLT in the last ten years was 2013, with a yield of -13.91%. Most years the iShares 20+ Year Treasury Bond ETF has given investors modest returns, such as in 2012, 2017, and 2010, when gains were 3.25%, 8.92%, and 9.25% respectively.

Portfolio Growth

VGK vs. TLT - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VGK $10,000 $18,350 6.68%
TLT $10,000 $23,809 9.00%

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 TLT, the end total would have been $23,809. This equates to a $13,809 profit over 11 years and a compound annual growth rate (CAGR) of 9.00%.

VGK’s CAGR is 2.32 percentage points lower than that of TLT and as a result, would have yielded $5,459 less on a $10,000 investment. Thus, VGK performed worse than TLT by 2.32% annually.


Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

2) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

3) If you are interested in crypto, check out Coinbase. I've started allocating a small amount of assets to the growing crypto space and Coinbase has just been a breeze to use. Once you register, make sure to also open an Coinbase Pro account to buy crypto at the lowest fees on the market (just 0.1%!).

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply