The Vanguard Information Technology Index Fund ETF Shares (VGT) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. VGT is a Vanguard Technology fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between VGT and VMBS? And which fund is better?
The expense ratio of VGT is 0.05 percentage points higher than VMBS’s (0.1% vs. 0.05%). VGT also has a high exposure to the technology sector while VMBS is mostly comprised of AAA bonds. Overall, VGT has provided higher returns than VMBS over the past ten years.
In this article, we’ll compare VGT vs. VMBS. We’ll look at annual returns and risk metrics, as well as at their fund composition and industry exposure. Moreover, I’ll also discuss VGT’s and VMBS’s portfolio growth, holdings, and performance and examine how these affect their overall returns.
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Summary
| VGT | VMBS | |
| Name | Vanguard Information Technology Index Fund ETF Shares | Vanguard Mortgage-Backed Securities Index Fund ETF Shares |
| Category | Technology | Intermediate Government |
| Issuer | Vanguard | Vanguard |
| AUM | 54.13B | 16.61B |
| Avg. Return | 20.84% | 2.89% |
| Div. Yield | 0.66% | 1.23% |
| Expense Ratio | 0.1% | 0.05% |
The Vanguard Information Technology Index Fund ETF Shares (VGT) is a Technology fund that is issued by Vanguard. It currently has 54.13B total assets under management and has yielded an average annual return of 20.84% over the past 10 years. The fund has a dividend yield of 0.66% with an expense ratio of 0.1%.
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%.
VGT’s dividend yield is 0.57% lower than that of VMBS (0.66% vs. 1.23%). Also, VGT yielded on average 17.94% more per year over the past decade (20.84% vs. 2.89%). The expense ratio of VGT is 0.05 percentage points higher than VMBS’s (0.1% vs. 0.05%).
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Fund Composition
Holdings
| VGT Holdings | Weight |
| Apple Inc | 19.58% |
| Microsoft Corp | 16.53% |
| NVIDIA Corp | 4.22% |
| Visa Inc Class A | 3.16% |
| PayPal Holdings Inc | 2.76% |
| Mastercard Inc Class A | 2.76% |
| Adobe Inc | 2.39% |
| Intel Corp | 1.94% |
| Salesforce.com Inc | 1.91% |
| Cisco Systems Inc | 1.9% |
VGT’s Top Holdings are Apple Inc, Microsoft Corp, NVIDIA Corp, Visa Inc Class A, and PayPal Holdings Inc at 19.58%, 16.53%, 4.22%, 3.16%, and 2.76%.
Mastercard Inc Class A (2.76%), Adobe Inc (2.39%), and Intel Corp (1.94%) have a slightly smaller but still significant weight. Salesforce.com Inc and Cisco Systems Inc are also represented in the VGT’s holdings at 1.91% and 1.9%.
| VMBS Bond Sectors | Weight |
| AAA | 100.01% |
| Below B | 0.0% |
| B | 0.0% |
| BB | 0.0% |
| BBB | 0.0% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
| 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.
Risk Analysis
| VGT | VMBS | |
| Mean Return | 1.76 | 0.21 |
| R-squared | 74.84 | 65.78 |
| Std. Deviation | 16.61 | 2.02 |
| Alpha | 10.41 | 0.37 |
| Beta | 1.02 | 0.54 |
| Sharpe Ratio | 1.23 | 0.94 |
| Treynor Ratio | 20.55 | 3.47 |
The Vanguard Information Technology Index Fund ETF Shares (VGT) has a Beta of 1.02 with a Sharpe Ratio of 1.23 and a Standard Deviation of 16.61. Its R-squared is 74.84 while VGT’s Mean Return is 1.76. Furthermore, the fund has a Alpha of 10.41 and a Treynor Ratio of 20.55.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Alpha of 0.37 with a Mean Return of 0.21 and a Treynor Ratio of 3.47. Its Standard Deviation is 2.02 while VMBS’s R-squared is 65.78. Furthermore, the fund has a Beta of 0.54 and a Sharpe Ratio of 0.94.
VGT’s Mean Return is 1.55 points higher than that of VMBS and its R-squared is 9.06 points higher. With a Standard Deviation of 16.61, VGT is slightly more volatile than VMBS. The Alpha and Beta of VGT are 10.04 points higher and 0.48 points higher than VMBS’s Alpha and Beta.
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Performance
Annual Returns
| Year | VGT | VMBS |
| 2020 | 45.94% | 3.77% |
| 2019 | 48.68% | 6.17% |
| 2018 | 2.52% | 0.87% |
| 2017 | 37.07% | 2.37% |
| 2016 | 13.73% | 1.43% |
| 2015 | 5.02% | 1.43% |
| 2014 | 18.01% | 5.81% |
| 2013 | 30.91% | -1.28% |
| 2012 | 14.05% | 2.47% |
| 2011 | 0.52% | 5.89% |
| 2010 | 12.74% | 5.24% |
VGT had its best year in 2019 with an annual return of 48.68%. VGT’s worst year over the past decade yielded 0.52% and occurred in 2011. In most years the Vanguard Information Technology Index Fund ETF Shares provided moderate returns such as in 2016, 2012, and 2014 where annual returns amounted to 13.73%, 14.05%, and 18.01% 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
| Fund | Initial Balance | Final Balance | CAGR |
| VGT | $10,000 | $64,500 | 20.84% |
| VMBS | $10,000 | $13,265 | 2.89% |
A $10,000 investment in VGT would have resulted in a final balance of $64,500. This is a profit of $54,500 over 10 years and amounts to a compound annual growth rate (CAGR) of 20.84%.
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%.
VGT’s CAGR is 17.94 percentage points higher than that of VMBS and as a result, would have yielded $51,235 more on a $10,000 investment. Thus, VGT outperformed VMBS by 17.94% annually.
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