VMBS vs. BIV: What’s The Difference?

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

VMBS and BIV have the same expense ratio: 0.05%. VMBS is mostly comprised of AAA bonds and BIV has a high exposure to AAA bond. Overall, VMBS has provided lower returns than BIV over the past 10 years.

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

Summary

VMBS BIV
Name Vanguard Mortgage-Backed Securities Index Fund ETF Shares Vanguard Intermediate-Term Bond Index Fund ETF Shares
Category Intermediate Government Intermediate-Term Bond
Issuer Vanguard Vanguard
AUM 16.61B 39.05B
Avg. Return 2.89% 5.31%
Div. Yield 1.23% 2.06%
Expense Ratio 0.05% 0.05%

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%.

The Vanguard Intermediate-Term Bond Index Fund ETF Shares (BIV) is a Intermediate-Term Bond fund that is issued by Vanguard. It currently has 39.05B total assets under management and has yielded an average annual return of 5.31% over the past 10 years. The fund has a dividend yield of 2.06% with an expense ratio of 0.05%.

VMBS’s dividend yield is 0.83% lower than that of BIV (1.23% vs. 2.06%). Also, VMBS yielded on average 2.42% less per year over the past decade (2.89% vs. 5.31%). VMBS and BIV have the same expense ratio: 0.05%.

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Fund Composition

Holdings

VMBS - Holdings

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.

BIV - Holdings

BIV Bond Sectors Weight
AAA 54.51%
BBB 25.24%
A 16.97%
AA 3.1%
Others 0.15%
Below B 0.03%
B 0.0%
BB 0.0%
US Government 0.0%

BIV’s Top Bond Sectors are ratings of AAA, BBB, A, AA, and Others at 54.51%, 25.24%, 16.97%, 3.1%, and 0.15%. The fund is less weighted towards Below B (0.03%), B (0.0%), and BB (0.0%) rated bonds.

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Risk Analysis

VMBS BIV
Mean Return 0.21 0.35
R-squared 65.78 95.12
Std. Deviation 2.02 4.09
Alpha 0.37 -0.07
Beta 0.54 1.33
Sharpe Ratio 0.94 0.89
Treynor Ratio 3.47 2.72

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

The Vanguard Intermediate-Term Bond Index Fund ETF Shares (BIV) has a Mean Return of 0.35 with a Alpha of -0.07 and a Treynor Ratio of 2.72. Its Standard Deviation is 4.09 while BIV’s Beta is 1.33. Furthermore, the fund has a Sharpe Ratio of 0.89 and a R-squared of 95.12.

VMBS’s Mean Return is 0.14 points lower than that of BIV and its R-squared is 29.34 points lower. With a Standard Deviation of 2.02, VMBS is slightly less volatile than BIV. The Alpha and Beta of VMBS are 0.44 points higher and 0.79 points lower than BIV’s Alpha and Beta.

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Performance

Annual Returns

VMBS vs. BIV - Annual Returns

Year VMBS BIV
2020 3.77% 9.71%
2019 6.17% 10.19%
2018 0.87% -0.09%
2017 2.37% 3.8%
2016 1.43% 2.86%
2015 1.43% 1.23%
2014 5.81% 7.0%
2013 -1.28% -3.44%
2012 2.47% 7.02%
2011 5.89% 10.62%
2010 5.24% 9.55%

VMBS had its best year in 2019 with an annual return of 6.17%. VMBS’s worst year over the past decade yielded -1.28% and occurred in 2013. In most years the Vanguard Mortgage-Backed Securities Index Fund ETF Shares provided moderate returns such as in 2017, 2012, and 2020 where annual returns amounted to 2.37%, 2.47%, and 3.77% respectively.

The year 2011 was the strongest year for BIV, returning 10.62% on an annual basis. The poorest year for BIV in the last ten years was 2013, with a yield of -3.44%. Most years the Vanguard Intermediate-Term Bond Index Fund ETF Shares has given investors modest returns, such as in 2017, 2014, and 2012, when gains were 3.8%, 7.0%, and 7.02% respectively.

Portfolio Growth

VMBS vs. BIV - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VMBS $10,000 $13,265 2.89%
BIV $10,000 $15,967 5.31%

A $10,000 investment in VMBS would have resulted in a final balance of $13,265. This is a profit of $3,265 over 10 years and amounts to a compound annual growth rate (CAGR) of 2.89%.

With a $10,000 investment in BIV, the end total would have been $15,967. This equates to a $5,967 profit over 10 years and a compound annual growth rate (CAGR) of 5.31%.

VMBS’s CAGR is 2.42 percentage points lower than that of BIV and as a result, would have yielded $2,702 less on a $10,000 investment. Thus, VMBS performed worse than BIV by 2.42% annually.


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