VO vs. VMBS: What’s The Difference?

The Vanguard Mid-Cap Index Fund ETF Shares (VO) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. VO is a Vanguard Mid-Cap Blend fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between VO and VMBS? And which fund is better?

The expense ratio of VO is 0.01 percentage points lower than VMBS’s (0.04% vs. 0.05%). VO also has a high exposure to the technology sector while VMBS is mostly comprised of AAA bonds. Overall, VO has provided higher returns than VMBS over the past ten years.

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

Summary

VO VMBS
Name Vanguard Mid-Cap Index Fund ETF Shares Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Mid-Cap Blend Intermediate Government
Issuer Vanguard Vanguard
AUM 154.08B 16.61B
Avg. Return 14.34% 2.89%
Div. Yield 1.23% 1.23%
Expense Ratio 0.04% 0.05%

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 Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) is a Intermediate Government fund that is issued by Vanguard. It currently has 16.61B total assets under management and has yielded an average annual return of 2.89% over the past 10 years. The fund has a dividend yield of 1.23% with an expense ratio of 0.05%.

VO’s dividend yield is 0.00% lower than that of VMBS (1.23% vs. 1.23%). Also, VO yielded on average 11.44% more per year over the past decade (14.34% vs. 2.89%). The expense ratio of VO is 0.01 percentage points lower than VMBS’s (0.04% vs. 0.05%).

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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%.

VMBS - Holdings

VMBS Bond Sectors Weight
AAA 100.01%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%
Others -0.01%

VMBS’s Top Bond Sectors are ratings of AAA, Below B, B, BB, and BBB at 100.01%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.

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Risk Analysis

VO VMBS
Mean Return 1.14 0.21
R-squared 92.22 65.78
Std. Deviation 15.65 2.02
Alpha -2.71 0.37
Beta 1.11 0.54
Sharpe Ratio 0.83 0.94
Treynor Ratio 11.32 3.47

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

The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a R-squared of 65.78 with a Beta of 0.54 and a Alpha of 0.37. Its Treynor Ratio is 3.47 while VMBS’s Mean Return is 0.21. Furthermore, the fund has a Standard Deviation of 2.02 and a Sharpe Ratio of 0.94.

VO’s Mean Return is 0.93 points higher than that of VMBS and its R-squared is 26.44 points higher. With a Standard Deviation of 15.65, VO is slightly more volatile than VMBS. The Alpha and Beta of VO are 3.08 points lower and 0.57 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

VO vs. VMBS - Annual Returns

Year VO VMBS
2020 18.22% 3.77%
2019 31.04% 6.17%
2018 -9.21% 0.87%
2017 19.25% 2.37%
2016 11.23% 1.43%
2015 -1.34% 1.43%
2014 13.76% 5.81%
2013 35.15% -1.28%
2012 15.98% 2.47%
2011 -1.96% 5.89%
2010 25.57% 5.24%

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 VMBS, returning 6.17% on an annual basis. The poorest year for VMBS in the last ten years was 2013, with a yield of -1.28%. Most years the Vanguard Mortgage-Backed Securities Index Fund ETF Shares has given investors modest returns, such as in 2017, 2012, and 2020, when gains were 2.37%, 2.47%, and 3.77% respectively.

Portfolio Growth

VO vs. VMBS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VO $10,000 $32,177 14.34%
VMBS $10,000 $13,265 2.89%

A $10,000 investment in VO would have resulted in a final balance of $32,177. This is a profit of $22,177 over 10 years and amounts to a compound annual growth rate (CAGR) of 14.34%.

With a $10,000 investment in VMBS, the end total would have been $13,265. This equates to a $3,265 profit over 10 years and a compound annual growth rate (CAGR) of 2.89%.

VO’s CAGR is 11.44 percentage points higher than that of VMBS and as a result, would have yielded $18,912 more on a $10,000 investment. Thus, VO outperformed VMBS by 11.44% annually.


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