VO vs. SHY: What’s The Difference?

The Vanguard Mid-Cap Index Fund ETF Shares (VO) and the iShares 1-3 Year Treasury Bond ETF (SHY) are both among the Top 100 ETFs. VO is a Vanguard Mid-Cap Blend fund and SHY is a iShares Short Government fund. So, what’s the difference between VO and SHY? And which fund is better?

The expense ratio of VO is 0.11 percentage points lower than SHY’s (0.04% vs. 0.15%). VO also has a high exposure to the technology sector while SHY is mostly comprised of AAA bonds. Overall, VO has provided higher returns than SHY over the past ten years.

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

Summary

VO SHY
Name Vanguard Mid-Cap Index Fund ETF Shares iShares 1-3 Year Treasury Bond ETF
Category Mid-Cap Blend Short Government
Issuer Vanguard iShares
AUM 154.08B 19.51B
Avg. Return 14.34% 1.27%
Div. Yield 1.23% 0.46%
Expense Ratio 0.04% 0.15%

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 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%.

VO’s dividend yield is 0.77% higher than that of SHY (1.23% vs. 0.46%). Also, VO yielded on average 13.06% more per year over the past decade (14.34% vs. 1.27%). The expense ratio of VO is 0.11 percentage points lower than SHY’s (0.04% vs. 0.15%).

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Fund Composition

Holdings

VO - 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%.

SHY - Holdings

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.

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Risk Analysis

VO SHY
Mean Return 1.14 0.09
R-squared 92.22 39.11
Std. Deviation 15.65 0.89
Alpha -2.71 -0.03
Beta 1.11 0.18
Sharpe Ratio 0.83 0.54
Treynor Ratio 11.32 2.6

The Vanguard Mid-Cap Index Fund ETF Shares (VO) has a Treynor Ratio of 11.32 with a Beta of 1.11 and a Standard Deviation of 15.65. Its Mean Return is 1.14 while VO’s R-squared is 92.22. Furthermore, the fund has a Alpha of -2.71 and a Sharpe Ratio of 0.83.

The iShares 1-3 Year Treasury Bond ETF (SHY) has a Alpha of -0.03 with a Mean Return of 0.09 and a Beta of 0.18. Its Standard Deviation is 0.89 while SHY’s Treynor Ratio is 2.6. Furthermore, the fund has a Sharpe Ratio of 0.54 and a R-squared of 39.11.

VO’s Mean Return is 1.05 points higher than that of SHY and its R-squared is 53.11 points higher. With a Standard Deviation of 15.65, VO is slightly more volatile than SHY. The Alpha and Beta of VO are 2.68 points lower and 0.93 points higher than SHY’s Alpha and Beta.

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Performance

Annual Returns

VO vs. SHY - Annual Returns

Year VO SHY
2020 18.22% 3.01%
2019 31.04% 3.42%
2018 -9.21% 1.45%
2017 19.25% 0.27%
2016 11.23% 0.75%
2015 -1.34% 0.43%
2014 13.76% 0.48%
2013 35.15% 0.23%
2012 15.98% 0.31%
2011 -1.96% 1.43%
2010 25.57% 2.23%

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 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

VO vs. SHY - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VO $10,000 $40,404 14.34%
SHY $10,000 $11,486 1.27%

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 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%.

VO’s CAGR is 13.06 percentage points higher than that of SHY and as a result, would have yielded $28,918 more on a $10,000 investment. Thus, VO outperformed SHY by 13.06% annually.


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