The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) and the iShares 7-10 Year Treasury Bond ETF (IEF) are both among the Top 100 ETFs. VMBS is a Vanguard Intermediate Government fund and IEF is a iShares Long Government fund. So, what’s the difference between VMBS and IEF? And which fund is better?
The expense ratio of VMBS is 0.10 percentage points lower than IEF’s (0.05% vs. 0.15%). VMBS is mostly comprised of AAA bonds and IEF has a high exposure to AAA bond. Overall, VMBS has provided lower returns than IEF over the past 10 years.
In this article, we’ll compare VMBS vs. IEF. We’ll look at industry exposure and performance, as well as at their portfolio growth and fund composition. Moreover, I’ll also discuss VMBS’s and IEF’s risk metrics, holdings, and annual returns and examine how these affect their overall returns.
|Name||Vanguard Mortgage-Backed Securities Index Fund ETF Shares||iShares 7-10 Year Treasury Bond ETF|
|Category||Intermediate Government||Long Government|
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 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%.
VMBS’s dividend yield is 0.39% higher than that of IEF (1.23% vs. 0.84%). Also, VMBS yielded on average 2.17% less per year over the past decade (2.89% vs. 5.06%). The expense ratio of VMBS is 0.10 percentage points lower than IEF’s (0.05% vs. 0.15%).
|VMBS Bond Sectors||Weight|
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.
|IEF Bond Sectors||Weight|
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.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a R-squared of 65.78 with a Beta of 0.54 and a Sharpe Ratio of 0.94. 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 Mean Return of 0.21.
The iShares 7-10 Year Treasury Bond ETF (IEF) has a Alpha of -1.2 with a Treynor Ratio of 1.97 and a R-squared of 77.56. Its Mean Return is 0.32 while IEF’s Beta is 1.59. Furthermore, the fund has a Sharpe Ratio of 0.6 and a Standard Deviation of 5.42.
VMBS’s Mean Return is 0.11 points lower than that of IEF and its R-squared is 11.78 points lower. With a Standard Deviation of 2.02, VMBS is slightly less volatile than IEF. The Alpha and Beta of VMBS are 1.57 points higher and 1.05 points lower than IEF’s Alpha and Beta.
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 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.
|Fund||Initial Balance||Final Balance||CAGR|
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 IEF, the end total would have been $15,497. This equates to a $5,497 profit over 10 years and a compound annual growth rate (CAGR) of 5.06%.
VMBS’s CAGR is 2.17 percentage points lower than that of IEF and as a result, would have yielded $2,232 less on a $10,000 investment. Thus, VMBS performed worse than IEF by 2.17% annually.
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