The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the iShares MBS ETF (MBB) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and MBB is a iShares Intermediate Government fund. So, what’s the difference between VNQ and MBB? And which fund is better?
The expense ratio of VNQ is 0.06 percentage points higher than MBB’s (0.12% vs. 0.06%). VNQ also has a high exposure to the real estate sector while MBB is mostly comprised of AAA bonds. Overall, VNQ has provided higher returns than MBB over the past ten years.
In this article, we’ll compare VNQ vs. MBB. We’ll look at performance and annual returns, as well as at their portfolio growth and fund composition. Moreover, I’ll also discuss VNQ’s and MBB’s industry exposure, risk metrics, and holdings and examine how these affect their overall returns.
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Summary
| VNQ | MBB | |
| Name | Vanguard Real Estate Index Fund ETF Shares | iShares MBS ETF |
| Category | Real Estate | Intermediate Government |
| Issuer | Vanguard | iShares |
| AUM | 77.34B | 25.69B |
| Avg. Return | 11.05% | 3.08% |
| Div. Yield | 2.34% | 1.88% |
| 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 MBS ETF (MBB) is a Intermediate Government fund that is issued by iShares. It currently has 25.69B total assets under management and has yielded an average annual return of 3.08% over the past 10 years. The fund has a dividend yield of 1.88% with an expense ratio of 0.06%.
VNQ’s dividend yield is 0.46% higher than that of MBB (2.34% vs. 1.88%). Also, VNQ yielded on average 7.97% more per year over the past decade (11.05% vs. 3.08%). The expense ratio of VNQ is 0.06 percentage points higher than MBB’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%.
| MBB Bond Sectors | Weight |
| AAA | 99.51% |
| Others | 0.49% |
| Below B | 0.0% |
| B | 0.0% |
| BB | 0.0% |
| BBB | 0.0% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
MBB’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.51%, 0.49%, 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.
Risk Analysis
| VNQ | MBB | |
| Mean Return | 0.89 | 0.2 |
| R-squared | 44.4 | 74.38 |
| Std. Deviation | 16.13 | 2.12 |
| Alpha | 2.47 | 0.14 |
| Beta | 0.76 | 0.6 |
| Sharpe Ratio | 0.62 | 0.87 |
| Treynor Ratio | 11.9 | 3.02 |
The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a Beta of 0.76 with a Mean Return of 0.89 and a Sharpe Ratio of 0.62. Its Standard Deviation is 16.13 while VNQ’s Alpha is 2.47. Furthermore, the fund has a Treynor Ratio of 11.9 and a R-squared of 44.4.
The iShares MBS ETF (MBB) has a Treynor Ratio of 3.02 with a R-squared of 74.38 and a Alpha of 0.14. Its Beta is 0.6 while MBB’s Standard Deviation is 2.12. Furthermore, the fund has a Sharpe Ratio of 0.87 and a Mean Return of 0.2.
VNQ’s Mean Return is 0.69 points higher than that of MBB and its R-squared is 29.98 points lower. With a Standard Deviation of 16.13, VNQ is slightly more volatile than MBB. The Alpha and Beta of VNQ are 2.33 points higher and 0.16 points higher than MBB’s Alpha and Beta.
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Performance
Annual Returns
| Year | VNQ | MBB |
| 2020 | -4.72% | 4.03% |
| 2019 | 28.91% | 6.27% |
| 2018 | -5.95% | 0.81% |
| 2017 | 4.95% | 2.37% |
| 2016 | 8.53% | 1.28% |
| 2015 | 2.37% | 1.28% |
| 2014 | 30.29% | 6.16% |
| 2013 | 2.42% | -1.92% |
| 2012 | 17.67% | 2.23% |
| 2011 | 8.62% | 5.88% |
| 2010 | 28.44% | 5.44% |
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 MBB, returning 6.27% on an annual basis. The poorest year for MBB in the last ten years was 2013, with a yield of -1.92%. Most years the iShares MBS ETF has given investors modest returns, such as in 2012, 2017, and 2020, when gains were 2.23%, 2.37%, and 4.03% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VNQ | $10,000 | $29,506 | 11.05% |
| MBB | $10,000 | $13,906 | 3.08% |
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 MBB, the end total would have been $13,906. This equates to a $3,906 profit over 11 years and a compound annual growth rate (CAGR) of 3.08%.
VNQ’s CAGR is 7.97 percentage points higher than that of MBB and as a result, would have yielded $15,600 more on a $10,000 investment. Thus, VNQ outperformed MBB by 7.97% annually.
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