The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the iShares Preferred and Income Securities ETF (PFF) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and PFF is a iShares Preferred Stock fund. So, what’s the difference between VNQ and PFF? And which fund is better?

The expense ratio of VNQ is 0.34 percentage points lower than PFF’s (0.12% vs. 0.46%). VNQ also has a higher exposure to the real estate sector and a higher standard deviation. Overall, VNQ has provided higher returns than PFF over the past ten years.

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

Summary

VNQPFF
NameVanguard Real Estate Index Fund ETF SharesiShares Preferred and Income Securities ETF
CategoryReal EstatePreferred Stock
IssuerVanguardiShares
AUM77.34B19.8B
Avg. Return11.05%6.90%
Div. Yield2.34%4.47%
Expense Ratio0.12%0.46%

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 Preferred and Income Securities ETF (PFF) is a Preferred Stock fund that is issued by iShares. It currently has 19.8B total assets under management and has yielded an average annual return of 6.90% over the past 10 years. The fund has a dividend yield of 4.47% with an expense ratio of 0.46%.

VNQ’s dividend yield is 2.13% lower than that of PFF (2.34% vs. 4.47%). Also, VNQ yielded on average 4.15% more per year over the past decade (11.05% vs. 6.90%). The expense ratio of VNQ is 0.34 percentage points lower than PFF’s (0.12% vs. 0.46%).

Fund Composition

Industry Exposure

VNQ vs. PFF - Industry Exposure

VNQPFF
Technology0.0%0.0%
Industrials0.0%10.27%
Energy0.0%0.0%
Communication Services0.0%0.0%
Utilities0.0%81.81%
Healthcare0.0%3.54%
Consumer Defensive0.0%0.0%
Real Estate100.0%0.65%
Financial Services0.0%0.0%
Consumer Cyclical0.0%0.0%
Basic Materials0.0%3.74%

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 Preferred and Income Securities ETF (PFF) has the most exposure to the Utilities sector at 81.81%. This is followed by Industrials and Basic Materials at 10.27% and 3.74% respectively. Financial Services (0.0%), Consumer Defensive (0.0%), and Communication Services (0.0%) only make up 0.00% of the fund’s total assets.

PFF’s mid-section with moderate exposure is comprised of Energy, Technology, Real Estate, Healthcare, and Basic Materials stocks at 0.0%, 0.0%, 0.65%, 3.54%, and 3.74%.

VNQ is 99.35% more exposed to the Real Estate sector than PFF (100.0% vs 0.65%). VNQ’s exposure to Technology and Industrials stocks is 0.00% lower and 10.27% lower respectively (0.0% vs. 0.0% and 0.0% vs. 10.27%). In total, Consumer Cyclical, Financial Services, and Consumer Defensive also make up 0.00% less of the fund’s holdings compared to PFF (0.00% vs. 0.00%).

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%.

PFF - Holdings

PFF HoldingsWeight
Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A2.54%
BlackRock Cash Funds Treasury SL Agency2.3%
Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L-1.79%
Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L-1.49%
ArcelorMittal S.A. 5.5%1.36%
Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A1.35%
Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B1.14%
NextEra Energy Inc Unit1.12%
Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.41.08%
Avantor Inc Ser A0.99%

PFF’s Top Holdings are Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A, BlackRock Cash Funds Treasury SL Agency, Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L-, Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L-, and ArcelorMittal S.A. 5.5% at 2.54%, 2.3%, 1.79%, 1.49%, and 1.36%.

Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A (1.35%), Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B (1.14%), and NextEra Energy Inc Unit (1.12%) have a slightly smaller but still significant weight. Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 and Avantor Inc Ser A are also represented in the PFF’s holdings at 1.08% and 0.99%.

Risk Analysis

VNQPFF
Mean Return0.890.52
R-squared44.49.39
Std. Deviation16.137.87
Alpha2.473.45
Beta0.760.81
Sharpe Ratio0.620.72
Treynor Ratio11.96.79

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

The iShares Preferred and Income Securities ETF (PFF) has a Beta of 0.81 with a Standard Deviation of 7.87 and a Sharpe Ratio of 0.72. Its Alpha is 3.45 while PFF’s Mean Return is 0.52. Furthermore, the fund has a Treynor Ratio of 6.79 and a R-squared of 9.39.

VNQ’s Mean Return is 0.37 points higher than that of PFF and its R-squared is 35.01 points higher. With a Standard Deviation of 16.13, VNQ is slightly more volatile than PFF. The Alpha and Beta of VNQ are 0.98 points lower and 0.05 points lower than PFF’s Alpha and Beta.

Performance

Annual Returns

VNQ vs. PFF - Annual Returns

YearVNQPFF
2020-4.72%7.94%
201928.91%15.62%
2018-5.95%-4.77%
20174.95%8.33%
20168.53%1.26%
20152.37%4.62%
201430.29%13.45%
20132.42%-0.59%
201217.67%18.25%
20118.62%-2.2%
201028.44%13.96%

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 2012 was the strongest year for PFF, returning 18.25% on an annual basis. The poorest year for PFF in the last ten years was 2018, with a yield of -4.77%. Most years the iShares Preferred and Income Securities ETF has given investors modest returns, such as in 2015, 2020, and 2017, when gains were 4.62%, 7.94%, and 8.33% respectively.

Portfolio Growth

VNQ vs. PFF - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VNQ$10,000$29,50611.05%
PFF$10,000$20,2726.90%

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 PFF, the end total would have been $20,272. This equates to a $10,272 profit over 11 years and a compound annual growth rate (CAGR) of 6.90%.

VNQ’s CAGR is 4.15 percentage points higher than that of PFF and as a result, would have yielded $9,234 more on a $10,000 investment. Thus, VNQ outperformed PFF by 4.15% annually.

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