VHT vs. TLT: What’s The Difference?

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

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

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

Summary

VHT TLT
Name Vanguard Health Care Index Fund ETF Shares iShares 20+ Year Treasury Bond ETF
Category Health Long Government
Issuer Vanguard iShares
AUM 17.94B 15.15B
Avg. Return 16.04% 9.00%
Div. Yield 1.15% 1.5%
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 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%.

VHT’s dividend yield is 0.35% lower than that of TLT (1.15% vs. 1.5%). Also, VHT yielded on average 7.04% more per year over the past decade (16.04% vs. 9.00%). The expense ratio of VHT is 0.05 percentage points lower than TLT’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%.

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.

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Risk Analysis

VHT TLT
Mean Return 1.33 0.63
R-squared 59.86 68.76
Std. Deviation 13.58 12.76
Alpha 7.99 -2.83
Beta 0.75 3.54
Sharpe Ratio 1.13 0.55
Treynor Ratio 20.74 1.82

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

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

VHT’s Mean Return is 0.70 points higher than that of TLT and its R-squared is 8.90 points lower. With a Standard Deviation of 13.58, VHT is slightly more volatile than TLT. The Alpha and Beta of VHT are 10.82 points higher and 2.79 points lower than TLT’s Alpha and Beta.

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Performance

Annual Returns

VHT vs. TLT - Annual Returns

Year VHT TLT
2020 18.21% 17.92%
2019 21.97% 14.93%
2018 5.55% -2.07%
2017 23.34% 8.92%
2016 -3.33% 1.36%
2015 7.22% -1.65%
2014 25.38% 27.35%
2013 42.67% -13.91%
2012 19.1% 3.25%
2011 10.57% 33.6%
2010 5.75% 9.25%

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 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

VHT vs. TLT - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VHT $10,000 $48,464 16.04%
TLT $10,000 $23,809 9.00%

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 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%.

VHT’s CAGR is 7.04 percentage points higher than that of TLT and as a result, would have yielded $24,655 more on a $10,000 investment. Thus, VHT outperformed TLT by 7.04% annually.


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