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VHT vs. VMBS: What’s The Difference?

The Vanguard Health Care Index Fund ETF Shares (VHT) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. VHT is a Vanguard Health fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between VHT and VMBS? And which fund is better?

The expense ratio of VHT is 0.05 percentage points higher than VMBS’s (0.1% vs. 0.05%). VHT also has a high exposure to the healthcare sector while VMBS is mostly comprised of AAA bonds. Overall, VHT has provided higher returns than VMBS over the past 10 years.

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

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Summary

VHTVMBS
NameVanguard Health Care Index Fund ETF SharesVanguard Mortgage-Backed Securities Index Fund ETF Shares
CategoryHealthIntermediate Government
IssuerVanguardVanguard
AUM17.94B16.61B
Avg. Return16.04%2.89%
Div. Yield1.15%1.23%
Expense Ratio0.1%0.05%

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 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%.

VHT’s dividend yield is 0.08% lower than that of VMBS (1.15% vs. 1.23%). Also, VHT yielded on average 13.15% more per year over the past decade (16.04% vs. 2.89%). The expense ratio of VHT is 0.05 percentage points higher than VMBS’s (0.1% vs. 0.05%).

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Fund Composition

Holdings

VHT - Holdings

VHT HoldingsWeight
Johnson & Johnson7.34%
UnitedHealth Group Inc6.44%
Pfizer Inc3.7%
Abbott Laboratories3.48%
Thermo Fisher Scientific Inc3.37%
AbbVie Inc3.37%
Merck & Co Inc3.33%
Eli Lilly and Co3.17%
Danaher Corp2.91%
Medtronic PLC2.83%

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%.

VMBS - Holdings

VMBS Bond SectorsWeight
AAA100.01%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%
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.

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Risk Analysis

VHTVMBS
Mean Return1.330.21
R-squared59.8665.78
Std. Deviation13.582.02
Alpha7.990.37
Beta0.750.54
Sharpe Ratio1.130.94
Treynor Ratio20.743.47

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

The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a R-squared of 65.78 with a Alpha of 0.37 and a Mean Return of 0.21. Its Treynor Ratio is 3.47 while VMBS’s Sharpe Ratio is 0.94. Furthermore, the fund has a Standard Deviation of 2.02 and a Beta of 0.54.

VHT’s Mean Return is 1.12 points higher than that of VMBS and its R-squared is 5.92 points lower. With a Standard Deviation of 13.58, VHT is slightly more volatile than VMBS. The Alpha and Beta of VHT are 7.62 points higher and 0.21 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

VHT vs. VMBS - Annual Returns

YearVHTVMBS
202018.21%3.77%
201921.97%6.17%
20185.55%0.87%
201723.34%2.37%
2016-3.33%1.43%
20157.22%1.43%
201425.38%5.81%
201342.67%-1.28%
201219.1%2.47%
201110.57%5.89%
20105.75%5.24%

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 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

VHT vs. VMBS - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VHT$10,000$45,82916.04%
VMBS$10,000$13,2652.89%

A $10,000 investment in VHT would have resulted in a final balance of $45,829. This is a profit of $35,829 over 10 years and amounts to a compound annual growth rate (CAGR) of 16.04%.

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%.

VHT’s CAGR is 13.15 percentage points higher than that of VMBS and as a result, would have yielded $32,564 more on a $10,000 investment. Thus, VHT outperformed VMBS by 13.15% annually.


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