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VNQ vs. IWR: What’s The Difference?

The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the iShares Russell Mid-Cap ETF (IWR) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and IWR is a iShares Mid-Cap Blend fund. So, what’s the difference between VNQ and IWR? And which fund is better?

The expense ratio of VNQ is 0.07 percentage points lower than IWR’s (0.12% vs. 0.19%). VNQ also has a higher exposure to the real estate sector and a higher standard deviation. Overall, VNQ has provided lower returns than IWR over the past ten years.

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

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Summary

VNQIWR
NameVanguard Real Estate Index Fund ETF SharesiShares Russell Mid-Cap ETF
CategoryReal EstateMid-Cap Blend
IssuerVanguardiShares
AUM77.34B29.84B
Avg. Return11.05%14.15%
Div. Yield2.34%0.99%
Expense Ratio0.12%0.19%

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 Mid-Cap ETF (IWR) is a Mid-Cap Blend fund that is issued by iShares. It currently has 29.84B total assets under management and has yielded an average annual return of 14.15% over the past 10 years. The fund has a dividend yield of 0.99% with an expense ratio of 0.19%.

VNQ’s dividend yield is 1.35% higher than that of IWR (2.34% vs. 0.99%). Also, VNQ yielded on average 3.10% less per year over the past decade (11.05% vs. 14.15%). The expense ratio of VNQ is 0.07 percentage points lower than IWR’s (0.12% vs. 0.19%).

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Fund Composition

Industry Exposure

VNQ vs. IWR - Industry Exposure

VNQIWR
Technology0.0%19.67%
Industrials0.0%14.54%
Energy0.0%3.48%
Communication Services0.0%4.64%
Utilities0.0%4.46%
Healthcare0.0%11.76%
Consumer Defensive0.0%3.82%
Real Estate100.0%8.31%
Financial Services0.0%11.64%
Consumer Cyclical0.0%13.59%
Basic Materials0.0%4.1%

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 Mid-Cap ETF (IWR) has the most exposure to the Technology sector at 19.67%. This is followed by Industrials and Consumer Cyclical at 14.54% and 13.59% respectively. Consumer Defensive (3.82%), Basic Materials (4.1%), and Utilities (4.46%) only make up 12.38% of the fund’s total assets.

IWR’s mid-section with moderate exposure is comprised of Communication Services, Real Estate, Financial Services, Healthcare, and Consumer Cyclical stocks at 4.64%, 8.31%, 11.64%, 11.76%, and 13.59%.

VNQ is 91.69% more exposed to the Real Estate sector than IWR (100.0% vs 8.31%). VNQ’s exposure to Technology and Industrials stocks is 19.67% lower and 14.54% lower respectively (0.0% vs. 19.67% and 0.0% vs. 14.54%). In total, Consumer Cyclical, Financial Services, and Consumer Defensive also make up 29.05% less of the fund’s holdings compared to IWR (0.00% vs. 29.05%).

Holdings

VNQ - Holdings

VNQ HoldingsWeight
Vanguard Real Estate II Index11.62%
American Tower Corp7.24%
Prologis Inc5.33%
Crown Castle International Corp5.01%
Equinix Inc4.3%
Public Storage2.85%
Simon Property Group Inc2.52%
Digital Realty Trust Inc2.49%
SBA Communications Corp2.1%
Welltower Inc2.09%

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%.

IWR - Holdings

IWR HoldingsWeight
IDEXX Laboratories Inc0.51%
DocuSign Inc0.51%
Twitter Inc0.48%
Chipotle Mexican Grill Inc0.47%
Roku Inc Class A0.44%
Marvell Technology Inc0.44%
DexCom Inc0.44%
Trane Technologies PLC0.43%
MSCI Inc0.43%
Carrier Global Corp Ordinary Shares0.43%

IWR’s Top Holdings are IDEXX Laboratories Inc, DocuSign Inc, Twitter Inc, Chipotle Mexican Grill Inc, and Roku Inc Class A at 0.51%, 0.51%, 0.48%, 0.47%, and 0.44%.

Marvell Technology Inc (0.44%), DexCom Inc (0.44%), and Trane Technologies PLC (0.43%) have a slightly smaller but still significant weight. MSCI Inc and Carrier Global Corp Ordinary Shares are also represented in the IWR’s holdings at 0.43% and 0.43%.

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Risk Analysis

VNQIWR
Mean Return0.891.17
R-squared44.491.52
Std. Deviation16.1315.66
Alpha2.47-2.8
Beta0.761.11
Sharpe Ratio0.620.86
Treynor Ratio11.911.72

The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a Sharpe Ratio of 0.62 with a Beta of 0.76 and a Treynor Ratio of 11.9. Its Alpha is 2.47 while VNQ’s R-squared is 44.4. Furthermore, the fund has a Standard Deviation of 16.13 and a Mean Return of 0.89.

The iShares Russell Mid-Cap ETF (IWR) has a Sharpe Ratio of 0.86 with a Standard Deviation of 15.66 and a Beta of 1.11. Its Treynor Ratio is 11.72 while IWR’s Alpha is -2.8. Furthermore, the fund has a R-squared of 91.52 and a Mean Return of 1.17.

VNQ’s Mean Return is 0.28 points lower than that of IWR and its R-squared is 47.12 points lower. With a Standard Deviation of 16.13, VNQ is slightly more volatile than IWR. The Alpha and Beta of VNQ are 5.27 points higher and 0.35 points lower than IWR’s Alpha and Beta.

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Performance

Annual Returns

VNQ vs. IWR - Annual Returns

YearVNQIWR
2020-4.72%16.91%
201928.91%30.31%
2018-5.95%-9.13%
20174.95%18.32%
20168.53%13.58%
20152.37%-2.57%
201430.29%13.03%
20132.42%34.5%
201217.67%17.13%
20118.62%-1.67%
201028.44%25.25%

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 IWR, returning 34.5% on an annual basis. The poorest year for IWR in the last ten years was 2018, with a yield of -9.13%. Most years the iShares Russell Mid-Cap ETF has given investors modest returns, such as in 2016, 2020, and 2012, when gains were 13.58%, 16.91%, and 17.13% respectively.

Portfolio Growth

VNQ vs. IWR - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VNQ$10,000$29,50611.05%
IWR$10,000$39,75114.15%

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 IWR, the end total would have been $39,751. This equates to a $29,751 profit over 11 years and a compound annual growth rate (CAGR) of 14.15%.

VNQ’s CAGR is 3.10 percentage points lower than that of IWR and as a result, would have yielded $10,245 less on a $10,000 investment. Thus, VNQ performed worse than IWR by 3.10% annually.


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