The Vanguard Mid-Cap Index Fund ETF Shares (VO) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) are both among the Top 100 ETFs. VO is a Vanguard Mid-Cap Blend fund and HYG is a iShares High Yield Bond fund. So, what’s the difference between VO and HYG? And which fund is better?
The expense ratio of VO is 0.44 percentage points lower than HYG’s (0.04% vs. 0.48%). VO also has a high exposure to the technology sector while HYG is mostly comprised of BB bonds. Overall, VO has provided higher returns than HYG over the past ten years.
In this article, we’ll compare VO vs. HYG. We’ll look at performance and fund composition, as well as at their annual returns and risk metrics. Moreover, I’ll also discuss VO’s and HYG’s portfolio growth, holdings, and industry exposure and examine how these affect their overall returns.
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Summary
| VO | HYG | |
| Name | Vanguard Mid-Cap Index Fund ETF Shares | iShares iBoxx $ High Yield Corporate Bond ETF |
| Category | Mid-Cap Blend | High Yield Bond |
| Issuer | Vanguard | iShares |
| AUM | 154.08B | 20.03B |
| Avg. Return | 14.34% | 6.42% |
| Div. Yield | 1.23% | 4.44% |
| Expense Ratio | 0.04% | 0.48% |
The Vanguard Mid-Cap Index Fund ETF Shares (VO) is a Mid-Cap Blend fund that is issued by Vanguard. It currently has 154.08B total assets under management and has yielded an average annual return of 14.34% over the past 10 years. The fund has a dividend yield of 1.23% with an expense ratio of 0.04%.
The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is a High Yield Bond fund that is issued by iShares. It currently has 20.03B total assets under management and has yielded an average annual return of 6.42% over the past 10 years. The fund has a dividend yield of 4.44% with an expense ratio of 0.48%.
VO’s dividend yield is 3.21% lower than that of HYG (1.23% vs. 4.44%). Also, VO yielded on average 7.92% more per year over the past decade (14.34% vs. 6.42%). The expense ratio of VO is 0.44 percentage points lower than HYG’s (0.04% vs. 0.48%).
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Fund Composition
Holdings
| VO Holdings | Weight |
| IDEXX Laboratories Inc | 0.78% |
| DocuSign Inc | 0.75% |
| Marvell Technology Inc | 0.68% |
| IQVIA Holdings Inc | 0.68% |
| Chipotle Mexican Grill Inc | 0.63% |
| Veeva Systems Inc Class A | 0.62% |
| Digital Realty Trust Inc | 0.62% |
| Centene Corp | 0.62% |
| Aptiv PLC | 0.62% |
| Carrier Global Corp Ordinary Shares | 0.61% |
VO’s Top Holdings are IDEXX Laboratories Inc, DocuSign Inc, Marvell Technology Inc, IQVIA Holdings Inc, and Chipotle Mexican Grill Inc at 0.78%, 0.75%, 0.68%, 0.68%, and 0.63%.
Veeva Systems Inc Class A (0.62%), Digital Realty Trust Inc (0.62%), and Centene Corp (0.62%) have a slightly smaller but still significant weight. Aptiv PLC and Carrier Global Corp Ordinary Shares are also represented in the VO’s holdings at 0.62% and 0.61%.
| HYG Bond Sectors | Weight |
| BB | 56.53% |
| B | 31.27% |
| Below B | 11.4% |
| BBB | 0.61% |
| AAA | 0.28% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
| Others | -0.09% |
HYG’s Top Bond Sectors are ratings of BB, B, Below B, BBB, and AAA at 56.53%, 31.27%, 11.4%, 0.61%, and 0.28%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.
Risk Analysis
| VO | HYG | |
| Mean Return | 1.14 | 0.46 |
| R-squared | 92.22 | 4.1 |
| Std. Deviation | 15.65 | 6.96 |
| Alpha | -2.71 | 3.58 |
| Beta | 1.11 | 0.48 |
| Sharpe Ratio | 0.83 | 0.7 |
| Treynor Ratio | 11.32 | 10.01 |
The Vanguard Mid-Cap Index Fund ETF Shares (VO) has a Mean Return of 1.14 with a Standard Deviation of 15.65 and a Beta of 1.11. Its R-squared is 92.22 while VO’s Sharpe Ratio is 0.83. Furthermore, the fund has a Alpha of -2.71 and a Treynor Ratio of 11.32.
The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a Standard Deviation of 6.96 with a Sharpe Ratio of 0.7 and a Treynor Ratio of 10.01. Its R-squared is 4.1 while HYG’s Beta is 0.48. Furthermore, the fund has a Alpha of 3.58 and a Mean Return of 0.46.
VO’s Mean Return is 0.68 points higher than that of HYG and its R-squared is 88.12 points higher. With a Standard Deviation of 15.65, VO is slightly more volatile than HYG. The Alpha and Beta of VO are 6.29 points lower and 0.63 points higher than HYG’s Alpha and Beta.
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Performance
Annual Returns
| Year | VO | HYG |
| 2020 | 18.22% | 4.12% |
| 2019 | 31.04% | 14.23% |
| 2018 | -9.21% | -1.93% |
| 2017 | 19.25% | 6.09% |
| 2016 | 11.23% | 13.92% |
| 2015 | -1.34% | -5.55% |
| 2014 | 13.76% | 2.0% |
| 2013 | 35.15% | 5.9% |
| 2012 | 15.98% | 13.83% |
| 2011 | -1.96% | 5.89% |
| 2010 | 25.57% | 12.07% |
VO had its best year in 2013 with an annual return of 35.15%. VO’s worst year over the past decade yielded -9.21% and occurred in 2018. In most years the Vanguard Mid-Cap Index Fund ETF Shares provided moderate returns such as in 2014, 2012, and 2020 where annual returns amounted to 13.76%, 15.98%, and 18.22% respectively.
The year 2019 was the strongest year for HYG, returning 14.23% on an annual basis. The poorest year for HYG in the last ten years was 2015, with a yield of -5.55%. Most years the iShares iBoxx $ High Yield Corporate Bond ETF has given investors modest returns, such as in 2011, 2013, and 2017, when gains were 5.89%, 5.9%, and 6.09% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VO | $10,000 | $40,404 | 14.34% |
| HYG | $10,000 | $19,427 | 6.42% |
A $10,000 investment in VO would have resulted in a final balance of $40,404. This is a profit of $30,404 over 11 years and amounts to a compound annual growth rate (CAGR) of 14.34%.
With a $10,000 investment in HYG, the end total would have been $19,427. This equates to a $9,427 profit over 11 years and a compound annual growth rate (CAGR) of 6.42%.
VO’s CAGR is 7.92 percentage points higher than that of HYG and as a result, would have yielded $20,977 more on a $10,000 investment. Thus, VO outperformed HYG by 7.92% annually.
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