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VNQ vs. USMV: What’s The Difference?

The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the iShares MSCI USA Min Vol Factor ETF (USMV) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and USMV is a iShares Large Blend fund. So, what’s the difference between VNQ and USMV? And which fund is better?

The expense ratio of VNQ is 0.03 percentage points lower than USMV’s (0.12% vs. 0.15%). VNQ also has a higher exposure to the real estate sector and a higher standard deviation. Overall, VNQ has provided lower returns than USMV over the past ten years.

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

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Summary

VNQUSMV
NameVanguard Real Estate Index Fund ETF SharesiShares MSCI USA Min Vol Factor ETF
CategoryReal EstateLarge Blend
IssuerVanguardiShares
AUM77.34B27.6B
Avg. Return11.05%13.89%
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 MSCI USA Min Vol Factor ETF (USMV) is a Large Blend fund that is issued by iShares. It currently has 27.6B total assets under management and has yielded an average annual return of 13.89% 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 USMV (2.34% vs. 1.5%). Also, VNQ yielded on average 2.85% less per year over the past decade (11.05% vs. 13.89%). The expense ratio of VNQ is 0.03 percentage points lower than USMV’s (0.12% vs. 0.15%).

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Fund Composition

Industry Exposure

VNQ vs. USMV - Industry Exposure

VNQUSMV
Technology0.0%20.53%
Industrials0.0%10.51%
Energy0.0%0.21%
Communication Services0.0%11.03%
Utilities0.0%6.93%
Healthcare0.0%18.42%
Consumer Defensive0.0%12.82%
Real Estate100.0%2.73%
Financial Services0.0%9.65%
Consumer Cyclical0.0%5.53%
Basic Materials0.0%1.65%

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 MSCI USA Min Vol Factor ETF (USMV) has the most exposure to the Technology sector at 20.53%. This is followed by Healthcare and Consumer Defensive at 18.42% and 12.82% respectively. Basic Materials (1.65%), Real Estate (2.73%), and Consumer Cyclical (5.53%) only make up 9.91% of the fund’s total assets.

USMV’s mid-section with moderate exposure is comprised of Utilities, Financial Services, Industrials, Communication Services, and Consumer Defensive stocks at 6.93%, 9.65%, 10.51%, 11.03%, and 12.82%.

VNQ is 97.27% more exposed to the Real Estate sector than USMV (100.0% vs 2.73%). VNQ’s exposure to Technology and Industrials stocks is 20.53% lower and 10.51% lower respectively (0.0% vs. 20.53% and 0.0% vs. 10.51%). In total, Consumer Cyclical, Financial Services, and Consumer Defensive also make up 28.00% less of the fund’s holdings compared to USMV (0.00% vs. 28.00%).

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%.

USMV - Holdings

USMV HoldingsWeight
Eli Lilly and Co1.64%
Microsoft Corp1.62%
T-Mobile US Inc1.51%
Accenture PLC Class A1.51%
Visa Inc Class A1.49%
Waste Management Inc1.45%
Adobe Inc1.45%
The Kroger Co1.44%
Johnson & Johnson1.42%
Gilead Sciences Inc1.42%

USMV’s Top Holdings are Eli Lilly and Co, Microsoft Corp, T-Mobile US Inc, Accenture PLC Class A, and Visa Inc Class A at 1.64%, 1.62%, 1.51%, 1.51%, and 1.49%.

Waste Management Inc (1.45%), Adobe Inc (1.45%), and The Kroger Co (1.44%) have a slightly smaller but still significant weight. Johnson & Johnson and Gilead Sciences Inc are also represented in the USMV’s holdings at 1.42% and 1.42%.

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Risk Analysis

VNQUSMV
Mean Return0.890
R-squared44.40
Std. Deviation16.130
Alpha2.470
Beta0.760
Sharpe Ratio0.620
Treynor Ratio11.90

The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a Sharpe Ratio of 0.62 with a Mean Return of 0.89 and a Standard Deviation of 16.13. Its Beta is 0.76 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 MSCI USA Min Vol Factor ETF (USMV) has a R-squared of 0 with a Standard Deviation of 0 and a Beta of 0. Its Alpha is 0 while USMV’s Treynor Ratio is 0. Furthermore, the fund has a Mean Return of 0 and a Sharpe Ratio of 0.

VNQ’s Mean Return is 0.89 points higher than that of USMV and its R-squared is 44.40 points higher. With a Standard Deviation of 16.13, VNQ is slightly more volatile than USMV. The Alpha and Beta of VNQ are 2.47 points higher and 0.76 points higher than USMV’s Alpha and Beta.

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Performance

Annual Returns

VNQ vs. USMV - Annual Returns

YearVNQUSMV
2020-4.72%5.6%
201928.91%27.77%
2018-5.95%1.36%
20174.95%18.97%
20168.53%10.5%
20152.37%5.5%
201430.29%16.34%
20132.42%25.11%
201217.67%11.04%
20118.62%0.0%
201028.44%0.0%

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 USMV, returning 27.77% on an annual basis. The poorest year for USMV in the last ten years was 2011, with a yield of 0.0%. Most years the iShares MSCI USA Min Vol Factor ETF has given investors modest returns, such as in 2020, 2016, and 2012, when gains were 5.6%, 10.5%, and 11.04% respectively.

Portfolio Growth

VNQ vs. USMV - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VNQ$10,000$17,97411.05%
USMV$10,000$27,60713.89%

A $10,000 investment in VNQ would have resulted in a final balance of $17,974. This is a profit of $7,974 over 8 years and amounts to a compound annual growth rate (CAGR) of 11.05%.

With a $10,000 investment in USMV, the end total would have been $27,607. This equates to a $17,607 profit over 8 years and a compound annual growth rate (CAGR) of 13.89%.

VNQ’s CAGR is 2.85 percentage points lower than that of USMV and as a result, would have yielded $9,633 less on a $10,000 investment. Thus, VNQ performed worse than USMV by 2.85% annually.


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