VHT vs. IEF: What’s The Difference?

The Vanguard Health Care Index Fund ETF Shares (VHT) and the iShares 7-10 Year Treasury Bond ETF (IEF) are both among the Top 100 ETFs. VHT is a Vanguard Health fund and IEF is a iShares Long Government fund. So, what’s the difference between VHT and IEF? And which fund is better?

The expense ratio of VHT is 0.05 percentage points lower than IEF’s (0.1% vs. 0.15%). VHT also has a high exposure to the healthcare sector while IEF is mostly comprised of AAA bonds. Overall, VHT has provided higher returns than IEF over the past 11 years.

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

Summary

VHT IEF
Name Vanguard Health Care Index Fund ETF Shares iShares 7-10 Year Treasury Bond ETF
Category Health Long Government
Issuer Vanguard iShares
AUM 17.94B 13.44B
Avg. Return 16.04% 5.06%
Div. Yield 1.15% 0.84%
Expense Ratio 0.1% 0.15%

The Vanguard Health Care Index Fund ETF Shares (VHT) is a Health fund that is issued by Vanguard. It currently has 17.94B total assets under management and has yielded an average annual return of 16.04% over the past 10 years. The fund has a dividend yield of 1.15% with an expense ratio of 0.1%.

The iShares 7-10 Year Treasury Bond ETF (IEF) is a Long Government fund that is issued by iShares. It currently has 13.44B total assets under management and has yielded an average annual return of 5.06% over the past 10 years. The fund has a dividend yield of 0.84% with an expense ratio of 0.15%.

VHT’s dividend yield is 0.31% higher than that of IEF (1.15% vs. 0.84%). Also, VHT yielded on average 10.98% more per year over the past decade (16.04% vs. 5.06%). The expense ratio of VHT is 0.05 percentage points lower than IEF’s (0.1% vs. 0.15%).

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Fund Composition

Holdings

VHT - Holdings

VHT Holdings Weight
Johnson & Johnson 7.34%
UnitedHealth Group Inc 6.44%
Pfizer Inc 3.7%
Abbott Laboratories 3.48%
Thermo Fisher Scientific Inc 3.37%
AbbVie Inc 3.37%
Merck & Co Inc 3.33%
Eli Lilly and Co 3.17%
Danaher Corp 2.91%
Medtronic PLC 2.83%

VHT’s Top Holdings are Johnson & Johnson, UnitedHealth Group Inc, Pfizer Inc, Abbott Laboratories, and Thermo Fisher Scientific Inc at 7.34%, 6.44%, 3.7%, 3.48%, and 3.37%.

AbbVie Inc (3.37%), Merck & Co Inc (3.33%), and Eli Lilly and Co (3.17%) have a slightly smaller but still significant weight. Danaher Corp and Medtronic PLC are also represented in the VHT’s holdings at 2.91% and 2.83%.

IEF - Holdings

IEF 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%

IEF’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.

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Risk Analysis

VHT IEF
Mean Return 1.33 0.32
R-squared 59.86 77.56
Std. Deviation 13.58 5.42
Alpha 7.99 -1.2
Beta 0.75 1.59
Sharpe Ratio 1.13 0.6
Treynor Ratio 20.74 1.97

The Vanguard Health Care Index Fund ETF Shares (VHT) has a Mean Return of 1.33 with a R-squared of 59.86 and a Alpha of 7.99. Its Sharpe Ratio is 1.13 while VHT’s Treynor Ratio is 20.74. Furthermore, the fund has a Beta of 0.75 and a Standard Deviation of 13.58.

The iShares 7-10 Year Treasury Bond ETF (IEF) has a Standard Deviation of 5.42 with a R-squared of 77.56 and a Sharpe Ratio of 0.6. Its Alpha is -1.2 while IEF’s Mean Return is 0.32. Furthermore, the fund has a Treynor Ratio of 1.97 and a Beta of 1.59.

VHT’s Mean Return is 1.01 points higher than that of IEF and its R-squared is 17.70 points lower. With a Standard Deviation of 13.58, VHT is slightly more volatile than IEF. The Alpha and Beta of VHT are 9.19 points higher and 0.84 points lower than IEF’s Alpha and Beta.

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Performance

Annual Returns

VHT vs. IEF - Annual Returns

Year VHT IEF
2020 18.21% 9.84%
2019 21.97% 8.38%
2018 5.55% 0.82%
2017 23.34% 2.47%
2016 -3.33% 1.0%
2015 7.22% 1.55%
2014 25.38% 8.92%
2013 42.67% -6.12%
2012 19.1% 4.06%
2011 10.57% 15.46%
2010 5.75% 9.29%

VHT had its best year in 2013 with an annual return of 42.67%. VHT’s worst year over the past decade yielded -3.33% and occurred in 2016. In most years the Vanguard Health Care Index Fund ETF Shares provided moderate returns such as in 2011, 2020, and 2012 where annual returns amounted to 10.57%, 18.21%, and 19.1% respectively.

The year 2011 was the strongest year for IEF, returning 15.46% on an annual basis. The poorest year for IEF in the last ten years was 2013, with a yield of -6.12%. Most years the iShares 7-10 Year Treasury Bond ETF has given investors modest returns, such as in 2017, 2012, and 2019, when gains were 2.47%, 4.06%, and 8.38% respectively.

Portfolio Growth

VHT vs. IEF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VHT $10,000 $48,464 16.04%
IEF $10,000 $16,936 5.06%

A $10,000 investment in VHT would have resulted in a final balance of $48,464. This is a profit of $38,464 over 11 years and amounts to a compound annual growth rate (CAGR) of 16.04%.

With a $10,000 investment in IEF, the end total would have been $16,936. This equates to a $6,936 profit over 11 years and a compound annual growth rate (CAGR) of 5.06%.

VHT’s CAGR is 10.98 percentage points higher than that of IEF and as a result, would have yielded $31,528 more on a $10,000 investment. Thus, VHT outperformed IEF by 10.98% annually.


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