The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and HYG is a iShares High Yield Bond fund. So, what’s the difference between VNQ and HYG? And which fund is better?
The expense ratio of VNQ is 0.36 percentage points lower than HYG’s (0.12% vs. 0.48%). VNQ also has a high exposure to the real estate sector while HYG is mostly comprised of BB bonds. Overall, VNQ has provided higher returns than HYG over the past ten years.
In this article, we’ll compare VNQ vs. HYG. We’ll look at portfolio growth and industry exposure, as well as at their annual returns and holdings. Moreover, I’ll also discuss VNQ’s and HYG’s performance, risk metrics, and fund composition and examine how these affect their overall returns.
Summary
| VNQ | HYG | |
| Name | Vanguard Real Estate Index Fund ETF Shares | iShares iBoxx $ High Yield Corporate Bond ETF |
| Category | Real Estate | High Yield Bond |
| Issuer | Vanguard | iShares |
| AUM | 77.34B | 20.03B |
| Avg. Return | 11.05% | 6.42% |
| Div. Yield | 2.34% | 4.44% |
| Expense Ratio | 0.12% | 0.48% |
The Vanguard Real Estate Index Fund ETF Shares (VNQ) is a Real Estate fund that is issued by Vanguard. It currently has 77.34B total assets under management and has yielded an average annual return of 11.05% over the past 10 years. The fund has a dividend yield of 2.34% with an expense ratio of 0.12%.
The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is a High Yield Bond fund that is issued by iShares. It currently has 20.03B total assets under management and has yielded an average annual return of 6.42% over the past 10 years. The fund has a dividend yield of 4.44% with an expense ratio of 0.48%.
VNQ’s dividend yield is 2.10% lower than that of HYG (2.34% vs. 4.44%). Also, VNQ yielded on average 4.63% more per year over the past decade (11.05% vs. 6.42%). The expense ratio of VNQ is 0.36 percentage points lower than HYG’s (0.12% vs. 0.48%).
Fund Composition
Holdings
| VNQ Holdings | Weight |
| Vanguard Real Estate II Index | 11.62% |
| American Tower Corp | 7.24% |
| Prologis Inc | 5.33% |
| Crown Castle International Corp | 5.01% |
| Equinix Inc | 4.3% |
| Public Storage | 2.85% |
| Simon Property Group Inc | 2.52% |
| Digital Realty Trust Inc | 2.49% |
| SBA Communications Corp | 2.1% |
| Welltower Inc | 2.09% |
VNQ’s Top Holdings are Vanguard Real Estate II Index, American Tower Corp, Prologis Inc, Crown Castle International Corp, and Equinix Inc at 11.62%, 7.24%, 5.33%, 5.01%, and 4.3%.
Public Storage (2.85%), Simon Property Group Inc (2.52%), and Digital Realty Trust Inc (2.49%) have a slightly smaller but still significant weight. SBA Communications Corp and Welltower Inc are also represented in the VNQ’s holdings at 2.1% and 2.09%.
| HYG Bond Sectors | Weight |
| BB | 56.53% |
| B | 31.27% |
| Below B | 11.4% |
| BBB | 0.61% |
| AAA | 0.28% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
| Others | -0.09% |
HYG’s Top Bond Sectors are ratings of BB, B, Below B, BBB, and AAA at 56.53%, 31.27%, 11.4%, 0.61%, and 0.28%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.
Risk Analysis
| VNQ | HYG | |
| Mean Return | 0.89 | 0.46 |
| R-squared | 44.4 | 4.1 |
| Std. Deviation | 16.13 | 6.96 |
| Alpha | 2.47 | 3.58 |
| Beta | 0.76 | 0.48 |
| Sharpe Ratio | 0.62 | 0.7 |
| Treynor Ratio | 11.9 | 10.01 |
The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a Alpha of 2.47 with a Beta of 0.76 and a Sharpe Ratio of 0.62. Its R-squared is 44.4 while VNQ’s Standard Deviation is 16.13. Furthermore, the fund has a Treynor Ratio of 11.9 and a Mean Return of 0.89.
The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a Beta of 0.48 with a Treynor Ratio of 10.01 and a Sharpe Ratio of 0.7. Its Standard Deviation is 6.96 while HYG’s Mean Return is 0.46. Furthermore, the fund has a Alpha of 3.58 and a R-squared of 4.1.
VNQ’s Mean Return is 0.43 points higher than that of HYG and its R-squared is 40.30 points higher. With a Standard Deviation of 16.13, VNQ is slightly more volatile than HYG. The Alpha and Beta of VNQ are 1.11 points lower and 0.28 points higher than HYG’s Alpha and Beta.
Performance
Annual Returns
| Year | VNQ | HYG |
| 2020 | -4.72% | 4.12% |
| 2019 | 28.91% | 14.23% |
| 2018 | -5.95% | -1.93% |
| 2017 | 4.95% | 6.09% |
| 2016 | 8.53% | 13.92% |
| 2015 | 2.37% | -5.55% |
| 2014 | 30.29% | 2.0% |
| 2013 | 2.42% | 5.9% |
| 2012 | 17.67% | 13.83% |
| 2011 | 8.62% | 5.89% |
| 2010 | 28.44% | 12.07% |
VNQ had its best year in 2014 with an annual return of 30.29%. VNQ’s worst year over the past decade yielded -5.95% and occurred in 2018. In most years the Vanguard Real Estate Index Fund ETF Shares provided moderate returns such as in 2017, 2016, and 2011 where annual returns amounted to 4.95%, 8.53%, and 8.62% respectively.
The year 2019 was the strongest year for HYG, returning 14.23% on an annual basis. The poorest year for HYG in the last ten years was 2015, with a yield of -5.55%. Most years the iShares iBoxx $ High Yield Corporate Bond ETF has given investors modest returns, such as in 2011, 2013, and 2017, when gains were 5.89%, 5.9%, and 6.09% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VNQ | $10,000 | $29,506 | 11.05% |
| HYG | $10,000 | $19,427 | 6.42% |
A $10,000 investment in VNQ would have resulted in a final balance of $29,506. This is a profit of $19,506 over 11 years and amounts to a compound annual growth rate (CAGR) of 11.05%.
With a $10,000 investment in HYG, the end total would have been $19,427. This equates to a $9,427 profit over 11 years and a compound annual growth rate (CAGR) of 6.42%.
VNQ’s CAGR is 4.63 percentage points higher than that of HYG and as a result, would have yielded $10,079 more on a $10,000 investment. Thus, VNQ outperformed HYG by 4.63% annually.
