The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and IGSB is a iShares Short-Term Bond fund. So, what’s the difference between VNQ and IGSB? And which fund is better?
The expense ratio of VNQ is 0.06 percentage points higher than IGSB’s (0.12% vs. 0.06%). VNQ also has a high exposure to the real estate sector while IGSB is mostly comprised of BBB bonds. Overall, VNQ has provided higher returns than IGSB over the past ten years.
In this article, we’ll compare VNQ vs. IGSB. We’ll look at portfolio growth and fund composition, as well as at their annual returns and holdings. Moreover, I’ll also discuss VNQ’s and IGSB’s performance, industry exposure, and risk metrics and examine how these affect their overall returns.
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Summary
| VNQ | IGSB | |
| NameVanguard Real Estate Index Fund ETF SharesiShares 1-5 Year Investment Grade Corporate Bond ETF | ||
| Category | Real Estate | Short-Term Bond |
| Issuer | Vanguard | iShares |
| AUM | 77.34B | 26.63B |
| Avg. Return | 11.05% | 2.51% |
| Div. Yield | 2.34% | 2.02% |
| Expense Ratio | 0.12% | 0.06% |
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 1-5 Year Investment Grade Corporate Bond ETF (IGSB) is a Short-Term Bond fund that is issued by iShares. It currently has 26.63B total assets under management and has yielded an average annual return of 2.51% over the past 10 years. The fund has a dividend yield of 2.02% with an expense ratio of 0.06%.
VNQ’s dividend yield is 0.32% higher than that of IGSB (2.34% vs. 2.02%). Also, VNQ yielded on average 8.54% more per year over the past decade (11.05% vs. 2.51%). The expense ratio of VNQ is 0.06 percentage points higher than IGSB’s (0.12% vs. 0.06%).
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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%.
| IGSB Bond Sectors | Weight |
| BBB | 50.48% |
| A | 40.04% |
| AA | 7.46% |
| AAA | 2.21% |
| BB | 0.09% |
| Below B | 0.0% |
| B | 0.0% |
| US Government | 0.0% |
| Others | -0.28% |
IGSB’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and BB at 50.48%, 40.04%, 7.46%, 2.21%, and 0.09%. The fund is less weighted towards Below B (0.0%), B (0.0%), and US Government (0.0%) rated bonds.
Risk Analysis
| VNQ | IGSB | |
| Mean Return | 0.89 | 0.19 |
| R-squared | 44.4 | 26.13 |
| Std. Deviation | 16.13 | 2 |
| Alpha | 2.47 | 0.69 |
| Beta | 0.76 | 0.34 |
| Sharpe Ratio | 0.62 | 0.82 |
| Treynor Ratio | 11.9 | 4.82 |
The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a Sharpe Ratio of 0.62 with a R-squared of 44.4 and a Beta of 0.76. Its Alpha is 2.47 while VNQ’s Mean Return is 0.89. Furthermore, the fund has a Standard Deviation of 16.13 and a Treynor Ratio of 11.9.
The iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB) has a Mean Return of 0.19 with a R-squared of 26.13 and a Sharpe Ratio of 0.82. Its Beta is 0.34 while IGSB’s Standard Deviation is 2. Furthermore, the fund has a Treynor Ratio of 4.82 and a Alpha of 0.69.
VNQ’s Mean Return is 0.70 points higher than that of IGSB and its R-squared is 18.27 points higher. With a Standard Deviation of 16.13, VNQ is slightly more volatile than IGSB. The Alpha and Beta of VNQ are 1.78 points higher and 0.42 points higher than IGSB’s Alpha and Beta.
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Performance
Annual Returns
| Year | VNQ | IGSB |
| 2020 | -4.72% | 5.26% |
| 2019 | 28.91% | 7.01% |
| 2018 | -5.95% | 1.34% |
| 2017 | 4.95% | 1.41% |
| 2016 | 8.53% | 1.77% |
| 2015 | 2.37% | 0.7% |
| 2014 | 30.29% | 0.74% |
| 2013 | 2.42% | 1.03% |
| 2012 | 17.67% | 3.28% |
| 2011 | 8.62% | 1.34% |
| 2010 | 28.44% | 3.69% |
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 IGSB, returning 7.01% on an annual basis. The poorest year for IGSB in the last ten years was 2015, with a yield of 0.7%. Most years the iShares 1-5 Year Investment Grade Corporate Bond ETF has given investors modest returns, such as in 2011, 2017, and 2016, when gains were 1.34%, 1.41%, and 1.77% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VNQ | $10,000 | $29,506 | 11.05% |
| IGSB | $10,000 | $13,103 | 2.51% |
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 IGSB, the end total would have been $13,103. This equates to a $3,103 profit over 11 years and a compound annual growth rate (CAGR) of 2.51%.
VNQ’s CAGR is 8.54 percentage points higher than that of IGSB and as a result, would have yielded $16,403 more on a $10,000 investment. Thus, VNQ outperformed IGSB by 8.54% annually.
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