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VNQ vs. TLT: What’s The Difference?

The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the iShares 20+ Year Treasury Bond ETF (TLT) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and TLT is a iShares Long Government fund. So, what’s the difference between VNQ and TLT? And which fund is better?

The expense ratio of VNQ is 0.03 percentage points lower than TLT’s (0.12% vs. 0.15%). VNQ also has a high exposure to the real estate sector while TLT is mostly comprised of AAA bonds. Overall, VNQ has provided higher returns than TLT over the past ten years.

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

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Summary

VNQTLT
NameVanguard Real Estate Index Fund ETF SharesiShares 20+ Year Treasury Bond ETF
CategoryReal EstateLong Government
IssuerVanguardiShares
AUM77.34B15.15B
Avg. Return11.05%9.00%
Div. Yield2.34%1.5%
Expense Ratio0.12%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 20+ Year Treasury Bond ETF (TLT) is a Long Government fund that is issued by iShares. It currently has 15.15B total assets under management and has yielded an average annual return of 9.00% over the past 10 years. The fund has a dividend yield of 1.5% with an expense ratio of 0.15%.

VNQ’s dividend yield is 0.84% higher than that of TLT (2.34% vs. 1.5%). Also, VNQ yielded on average 2.05% more per year over the past decade (11.05% vs. 9.00%). The expense ratio of VNQ is 0.03 percentage points lower than TLT’s (0.12% vs. 0.15%).

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Fund Composition

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%.

TLT - Holdings

TLT Bond SectorsWeight
AAA100.0%
Others0.0%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%

TLT’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 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.

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Risk Analysis

VNQTLT
Mean Return0.890.63
R-squared44.468.76
Std. Deviation16.1312.76
Alpha2.47-2.83
Beta0.763.54
Sharpe Ratio0.620.55
Treynor Ratio11.91.82

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

The iShares 20+ Year Treasury Bond ETF (TLT) has a Mean Return of 0.63 with a Treynor Ratio of 1.82 and a R-squared of 68.76. Its Beta is 3.54 while TLT’s Sharpe Ratio is 0.55. Furthermore, the fund has a Alpha of -2.83 and a Standard Deviation of 12.76.

VNQ’s Mean Return is 0.26 points higher than that of TLT and its R-squared is 24.36 points lower. With a Standard Deviation of 16.13, VNQ is slightly more volatile than TLT. The Alpha and Beta of VNQ are 5.30 points higher and 2.78 points lower than TLT’s Alpha and Beta.

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Performance

Annual Returns

VNQ vs. TLT - Annual Returns

YearVNQTLT
2020-4.72%17.92%
201928.91%14.93%
2018-5.95%-2.07%
20174.95%8.92%
20168.53%1.36%
20152.37%-1.65%
201430.29%27.35%
20132.42%-13.91%
201217.67%3.25%
20118.62%33.6%
201028.44%9.25%

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 2011 was the strongest year for TLT, returning 33.6% on an annual basis. The poorest year for TLT in the last ten years was 2013, with a yield of -13.91%. Most years the iShares 20+ Year Treasury Bond ETF has given investors modest returns, such as in 2012, 2017, and 2010, when gains were 3.25%, 8.92%, and 9.25% respectively.

Portfolio Growth

VNQ vs. TLT - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VNQ$10,000$29,50611.05%
TLT$10,000$23,8099.00%

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 TLT, the end total would have been $23,809. This equates to a $13,809 profit over 11 years and a compound annual growth rate (CAGR) of 9.00%.

VNQ’s CAGR is 2.05 percentage points higher than that of TLT and as a result, would have yielded $5,697 more on a $10,000 investment. Thus, VNQ outperformed TLT by 2.05% annually.


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