The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the iShares Russell 1000 ETF (IWB) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and IWB is a iShares Large Blend fund. So, what’s the difference between VNQ and IWB? And which fund is better?
The expense ratio of VNQ is 0.03 percentage points lower than IWB’s (0.12% vs. 0.15%). VNQ also has a higher exposure to the real estate sector and a higher standard deviation. Overall, VNQ has provided lower returns than IWB over the past ten years.
In this article, we’ll compare VNQ vs. IWB. We’ll look at industry exposure and holdings, as well as at their risk metrics and fund composition. Moreover, I’ll also discuss VNQ’s and IWB’s portfolio growth, performance, and annual returns and examine how these affect their overall returns.
FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!
Summary
| VNQ | IWB | |
| Name | Vanguard Real Estate Index Fund ETF Shares | iShares Russell 1000 ETF |
| Category | Real Estate | Large Blend |
| Issuer | Vanguard | iShares |
| AUM | 77.34B | 30.54B |
| Avg. Return | 11.05% | 14.64% |
| Div. Yield | 2.34% | 1.14% |
| Expense Ratio | 0.12% | 0.15% |
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 Russell 1000 ETF (IWB) is a Large Blend fund that is issued by iShares. It currently has 30.54B total assets under management and has yielded an average annual return of 14.64% over the past 10 years. The fund has a dividend yield of 1.14% with an expense ratio of 0.15%.
VNQ’s dividend yield is 1.20% higher than that of IWB (2.34% vs. 1.14%). Also, VNQ yielded on average 3.59% less per year over the past decade (11.05% vs. 14.64%). The expense ratio of VNQ is 0.03 percentage points lower than IWB’s (0.12% vs. 0.15%).
FYI: The best way I've found to invest is through M1 Finance. It's free and you even get an instant line of credit and 100$! Have a look here (link to M1 Finance).
Fund Composition
Industry Exposure
| VNQ | IWB | |
| Technology | 0.0% | 25.33% |
| Industrials | 0.0% | 8.88% |
| Energy | 0.0% | 2.44% |
| Communication Services | 0.0% | 10.83% |
| Utilities | 0.0% | 2.36% |
| Healthcare | 0.0% | 13.35% |
| Consumer Defensive | 0.0% | 5.97% |
| Real Estate | 100.0% | 3.34% |
| Financial Services | 0.0% | 13.64% |
| Consumer Cyclical | 0.0% | 11.85% |
| Basic Materials | 0.0% | 2.02% |
The Vanguard Real Estate Index Fund ETF Shares (VNQ) has the most exposure to the Real Estate sector at 100.0%. This is followed by Technology and Industrials at 0.0% and 0.0% respectively. Consumer Cyclical (0.0%), Financial Services (0.0%), and Consumer Defensive (0.0%) only make up 0.00% of the fund’s total assets.
VNQ’s mid-section with moderate exposure is comprised of Healthcare, Utilities, Communication Services, Energy, and Industrials stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.0%.
The iShares Russell 1000 ETF (IWB) has the most exposure to the Technology sector at 25.33%. This is followed by Financial Services and Healthcare at 13.64% and 13.35% respectively. Utilities (2.36%), Energy (2.44%), and Real Estate (3.34%) only make up 8.14% of the fund’s total assets.
IWB’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Communication Services, Consumer Cyclical, and Healthcare stocks at 5.97%, 8.88%, 10.83%, 11.85%, and 13.35%.
VNQ is 96.66% more exposed to the Real Estate sector than IWB (100.0% vs 3.34%). VNQ’s exposure to Technology and Industrials stocks is 25.33% lower and 8.88% lower respectively (0.0% vs. 25.33% and 0.0% vs. 8.88%). In total, Consumer Cyclical, Financial Services, and Consumer Defensive also make up 31.46% less of the fund’s holdings compared to IWB (0.00% vs. 31.46%).
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%.
| IWB Holdings | Weight |
| Apple Inc | 5.45% |
| Microsoft Corp | 5.11% |
| Amazon.com Inc | 3.43% |
| Facebook Inc Class A | 2.03% |
| Alphabet Inc Class A | 1.93% |
| Alphabet Inc Class C | 1.82% |
| Tesla Inc | 1.27% |
| Berkshire Hathaway Inc Class B | 1.24% |
| NVIDIA Corp | 1.11% |
| JPMorgan Chase & Co | 1.09% |
IWB’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc Class A, and Alphabet Inc Class A at 5.45%, 5.11%, 3.43%, 2.03%, and 1.93%.
Alphabet Inc Class C (1.82%), Tesla Inc (1.27%), and Berkshire Hathaway Inc Class B (1.24%) have a slightly smaller but still significant weight. NVIDIA Corp and JPMorgan Chase & Co are also represented in the IWB’s holdings at 1.11% and 1.09%.
Risk Analysis
| VNQ | IWB | |
| Mean Return | 0.89 | 1.27 |
| R-squared | 44.4 | 99.73 |
| Std. Deviation | 16.13 | 13.87 |
| Alpha | 2.47 | -0.38 |
| Beta | 0.76 | 1.02 |
| Sharpe Ratio | 0.62 | 1.05 |
| Treynor Ratio | 11.9 | 14.31 |
The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a Sharpe Ratio of 0.62 with a Standard Deviation of 16.13 and a Treynor Ratio of 11.9. Its Alpha is 2.47 while VNQ’s Beta is 0.76. Furthermore, the fund has a Mean Return of 0.89 and a R-squared of 44.4.
The iShares Russell 1000 ETF (IWB) has a Sharpe Ratio of 1.05 with a Alpha of -0.38 and a Treynor Ratio of 14.31. Its Standard Deviation is 13.87 while IWB’s R-squared is 99.73. Furthermore, the fund has a Mean Return of 1.27 and a Beta of 1.02.
VNQ’s Mean Return is 0.38 points lower than that of IWB and its R-squared is 55.33 points lower. With a Standard Deviation of 16.13, VNQ is slightly more volatile than IWB. The Alpha and Beta of VNQ are 2.85 points higher and 0.26 points lower than IWB’s Alpha and Beta.
NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).
Performance
Annual Returns
| Year | VNQ | IWB |
| 2020 | -4.72% | 20.8% |
| 2019 | 28.91% | 31.26% |
| 2018 | -5.95% | -4.91% |
| 2017 | 4.95% | 21.53% |
| 2016 | 8.53% | 11.91% |
| 2015 | 2.37% | 0.82% |
| 2014 | 30.29% | 13.08% |
| 2013 | 2.42% | 32.93% |
| 2012 | 17.67% | 16.27% |
| 2011 | 8.62% | 1.36% |
| 2010 | 28.44% | 15.94% |
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 2013 was the strongest year for IWB, returning 32.93% on an annual basis. The poorest year for IWB in the last ten years was 2018, with a yield of -4.91%. Most years the iShares Russell 1000 ETF has given investors modest returns, such as in 2014, 2010, and 2012, when gains were 13.08%, 15.94%, and 16.27% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VNQ | $10,000 | $29,506 | 11.05% |
| IWB | $10,000 | $42,462 | 14.64% |
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 IWB, the end total would have been $42,462. This equates to a $32,462 profit over 11 years and a compound annual growth rate (CAGR) of 14.64%.
VNQ’s CAGR is 3.59 percentage points lower than that of IWB and as a result, would have yielded $12,956 less on a $10,000 investment. Thus, VNQ performed worse than IWB by 3.59% annually.
Current recommendations:
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.
I believe that money is just a means to an end: to be free to spend your time as you wish, to maximize your positive impact on the world.
