The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the iShares 1-3 Year Treasury Bond ETF (SHY) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and SHY is a iShares Short Government fund. So, what’s the difference between VNQ and SHY? And which fund is better?
The expense ratio of VNQ is 0.03 percentage points lower than SHY’s (0.12% vs. 0.15%). VNQ also has a high exposure to the real estate sector while SHY is mostly comprised of AAA bonds. Overall, VNQ has provided higher returns than SHY over the past ten years.
In this article, we’ll compare VNQ vs. SHY. We’ll look at portfolio growth and risk metrics, as well as at their holdings and annual returns. Moreover, I’ll also discuss VNQ’s and SHY’s performance, industry exposure, and fund composition and examine how these affect their overall returns.
Summary
| VNQ | SHY | |
| Name | Vanguard Real Estate Index Fund ETF Shares | iShares 1-3 Year Treasury Bond ETF |
| Category | Real Estate | Short Government |
| Issuer | Vanguard | iShares |
| AUM | 77.34B | 19.51B |
| Avg. Return | 11.05% | 1.27% |
| Div. Yield | 2.34% | 0.46% |
| 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 1-3 Year Treasury Bond ETF (SHY) is a Short Government fund that is issued by iShares. It currently has 19.51B total assets under management and has yielded an average annual return of 1.27% over the past 10 years. The fund has a dividend yield of 0.46% with an expense ratio of 0.15%.
VNQ’s dividend yield is 1.88% higher than that of SHY (2.34% vs. 0.46%). Also, VNQ yielded on average 9.77% more per year over the past decade (11.05% vs. 1.27%). The expense ratio of VNQ is 0.03 percentage points lower than SHY’s (0.12% vs. 0.15%).
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%.
| SHY Bond Sectors | Weight |
| AAA | 99.67% |
| Others | 0.33% |
| Below B | 0.0% |
| B | 0.0% |
| BB | 0.0% |
| BBB | 0.0% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
SHY’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.67%, 0.33%, 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 | SHY | |
| Mean Return | 0.89 | 0.09 |
| R-squared | 44.4 | 39.11 |
| Std. Deviation | 16.13 | 0.89 |
| Alpha | 2.47 | -0.03 |
| Beta | 0.76 | 0.18 |
| Sharpe Ratio | 0.62 | 0.54 |
| Treynor Ratio | 11.9 | 2.6 |
The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a Treynor Ratio of 11.9 with a Alpha of 2.47 and a Beta of 0.76. Its Mean Return is 0.89 while VNQ’s Standard Deviation is 16.13. Furthermore, the fund has a R-squared of 44.4 and a Sharpe Ratio of 0.62.
The iShares 1-3 Year Treasury Bond ETF (SHY) has a Sharpe Ratio of 0.54 with a Mean Return of 0.09 and a R-squared of 39.11. Its Alpha is -0.03 while SHY’s Beta is 0.18. Furthermore, the fund has a Treynor Ratio of 2.6 and a Standard Deviation of 0.89.
VNQ’s Mean Return is 0.80 points higher than that of SHY and its R-squared is 5.29 points higher. With a Standard Deviation of 16.13, VNQ is slightly more volatile than SHY. The Alpha and Beta of VNQ are 2.50 points higher and 0.58 points higher than SHY’s Alpha and Beta.
Performance
Annual Returns
| Year | VNQ | SHY |
| 2020 | -4.72% | 3.01% |
| 2019 | 28.91% | 3.42% |
| 2018 | -5.95% | 1.45% |
| 2017 | 4.95% | 0.27% |
| 2016 | 8.53% | 0.75% |
| 2015 | 2.37% | 0.43% |
| 2014 | 30.29% | 0.48% |
| 2013 | 2.42% | 0.23% |
| 2012 | 17.67% | 0.31% |
| 2011 | 8.62% | 1.43% |
| 2010 | 28.44% | 2.23% |
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 SHY, returning 3.42% on an annual basis. The poorest year for SHY in the last ten years was 2013, with a yield of 0.23%. Most years the iShares 1-3 Year Treasury Bond ETF has given investors modest returns, such as in 2014, 2016, and 2011, when gains were 0.48%, 0.75%, and 1.43% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VNQ | $10,000 | $29,506 | 11.05% |
| SHY | $10,000 | $11,486 | 1.27% |
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 SHY, the end total would have been $11,486. This equates to a $1,486 profit over 11 years and a compound annual growth rate (CAGR) of 1.27%.
VNQ’s CAGR is 9.77 percentage points higher than that of SHY and as a result, would have yielded $18,020 more on a $10,000 investment. Thus, VNQ outperformed SHY by 9.77% annually.
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