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VNQ vs. VBR: What’s The Difference?

The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the Vanguard Small-Cap Value Index Fund ETF Shares (VBR) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and VBR is a Vanguard Small Value fund. So, what’s the difference between VNQ and VBR? And which fund is better?

The expense ratio of VNQ is 0.05 percentage points higher than VBR’s (0.12% vs. 0.07%). VNQ also has a higher exposure to the real estate sector and a lower standard deviation. Overall, VNQ has provided lower returns than VBR over the past ten years.

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

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Summary

VNQVBR
NameVanguard Real Estate Index Fund ETF SharesVanguard Small-Cap Value Index Fund ETF Shares
CategoryReal EstateSmall Value
IssuerVanguardVanguard
AUM77.34B48.08B
Avg. Return11.05%12.28%
Div. Yield2.34%1.6%
Expense Ratio0.12%0.07%

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 Vanguard Small-Cap Value Index Fund ETF Shares (VBR) is a Small Value fund that is issued by Vanguard. It currently has 48.08B total assets under management and has yielded an average annual return of 12.28% over the past 10 years. The fund has a dividend yield of 1.6% with an expense ratio of 0.07%.

VNQ’s dividend yield is 0.74% higher than that of VBR (2.34% vs. 1.6%). Also, VNQ yielded on average 1.23% less per year over the past decade (11.05% vs. 12.28%). The expense ratio of VNQ is 0.05 percentage points higher than VBR’s (0.12% vs. 0.07%).

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Fund Composition

Industry Exposure

VNQ vs. VBR - Industry Exposure

VNQVBR
Technology0.0%8.39%
Industrials0.0%18.44%
Energy0.0%5.15%
Communication Services0.0%1.77%
Utilities0.0%3.65%
Healthcare0.0%7.16%
Consumer Defensive0.0%4.36%
Real Estate100.0%10.92%
Financial Services0.0%20.04%
Consumer Cyclical0.0%13.82%
Basic Materials0.0%6.31%

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 Vanguard Small-Cap Value Index Fund ETF Shares (VBR) has the most exposure to the Financial Services sector at 20.04%. This is followed by Industrials and Consumer Cyclical at 18.44% and 13.82% respectively. Utilities (3.65%), Consumer Defensive (4.36%), and Energy (5.15%) only make up 13.16% of the fund’s total assets.

VBR’s mid-section with moderate exposure is comprised of Basic Materials, Healthcare, Technology, Real Estate, and Consumer Cyclical stocks at 6.31%, 7.16%, 8.39%, 10.92%, and 13.82%.

VNQ is 89.08% more exposed to the Real Estate sector than VBR (100.0% vs 10.92%). VNQ’s exposure to Technology and Industrials stocks is 8.39% lower and 18.44% lower respectively (0.0% vs. 8.39% and 0.0% vs. 18.44%). In total, Consumer Cyclical, Financial Services, and Consumer Defensive also make up 38.22% less of the fund’s holdings compared to VBR (0.00% vs. 38.22%).

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%.

VBR - Holdings

VBR HoldingsWeight
Diamondback Energy Inc0.55%
VICI Properties Inc Ordinary Shares0.54%
IDEX Corp0.54%
Nuance Communications Inc0.5%
Molina Healthcare Inc0.48%
Signature Bank0.46%
Novavax Inc0.44%
Howmet Aerospace Inc0.44%
Apollo Global Management Inc Class A0.42%
Brown & Brown Inc0.41%

VBR’s Top Holdings are Diamondback Energy Inc, VICI Properties Inc Ordinary Shares, IDEX Corp, Nuance Communications Inc, and Molina Healthcare Inc at 0.55%, 0.54%, 0.54%, 0.5%, and 0.48%.

Signature Bank (0.46%), Novavax Inc (0.44%), and Howmet Aerospace Inc (0.44%) have a slightly smaller but still significant weight. Apollo Global Management Inc Class A and Brown & Brown Inc are also represented in the VBR’s holdings at 0.42% and 0.41%.

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Risk Analysis

VNQVBR
Mean Return0.891.08
R-squared44.482.2
Std. Deviation16.1318.37
Alpha2.47-5.09
Beta0.761.23
Sharpe Ratio0.620.67
Treynor Ratio11.99.15

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

The Vanguard Small-Cap Value Index Fund ETF Shares (VBR) has a R-squared of 82.2 with a Beta of 1.23 and a Sharpe Ratio of 0.67. Its Mean Return is 1.08 while VBR’s Alpha is -5.09. Furthermore, the fund has a Treynor Ratio of 9.15 and a Standard Deviation of 18.37.

VNQ’s Mean Return is 0.19 points lower than that of VBR and its R-squared is 37.80 points lower. With a Standard Deviation of 16.13, VNQ is slightly less volatile than VBR. The Alpha and Beta of VNQ are 7.56 points higher and 0.47 points lower than VBR’s Alpha and Beta.

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Performance

Annual Returns

VNQ vs. VBR - Annual Returns

YearVNQVBR
2020-4.72%5.82%
201928.91%22.76%
2018-5.95%-12.22%
20174.95%11.79%
20168.53%24.8%
20152.37%-4.67%
201430.29%10.55%
20132.42%36.57%
201217.67%18.78%
20118.62%-4.05%
201028.44%24.97%

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 2013 was the strongest year for VBR, returning 36.57% on an annual basis. The poorest year for VBR in the last ten years was 2018, with a yield of -12.22%. Most years the Vanguard Small-Cap Value Index Fund ETF Shares has given investors modest returns, such as in 2014, 2017, and 2012, when gains were 10.55%, 11.79%, and 18.78% respectively.

Portfolio Growth

VNQ vs. VBR - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VNQ$10,000$29,50611.05%
VBR$10,000$32,61112.28%

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 VBR, the end total would have been $32,611. This equates to a $22,611 profit over 11 years and a compound annual growth rate (CAGR) of 12.28%.

VNQ’s CAGR is 1.23 percentage points lower than that of VBR and as a result, would have yielded $3,105 less on a $10,000 investment. Thus, VNQ performed worse than VBR by 1.23% annually.


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