VO vs. VNQ: What’s The Difference?

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

The expense ratio of VO is 0.08 percentage points lower than VNQ’s (0.04% vs. 0.12%). VO also has a higher exposure to the technology sector and a lower standard deviation. Overall, VO has provided higher returns than VNQ over the past ten years.

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

Summary

VO VNQ
Name Vanguard Mid-Cap Index Fund ETF Shares Vanguard Real Estate Index Fund ETF Shares
Category Mid-Cap Blend Real Estate
Issuer Vanguard Vanguard
AUM 154.08B 77.34B
Avg. Return 14.34% 11.05%
Div. Yield 1.23% 2.34%
Expense Ratio 0.04% 0.12%

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 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%.

VO’s dividend yield is 1.11% lower than that of VNQ (1.23% vs. 2.34%). Also, VO yielded on average 3.29% more per year over the past decade (14.34% vs. 11.05%). The expense ratio of VO is 0.08 percentage points lower than VNQ’s (0.04% vs. 0.12%).

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Fund Composition

Industry Exposure

VO vs. VNQ - Industry Exposure

VO VNQ
Technology 22.01% 0.0%
Industrials 11.92% 0.0%
Energy 3.82% 0.0%
Communication Services 5.61% 0.0%
Utilities 5.12% 0.0%
Healthcare 13.03% 0.0%
Consumer Defensive 3.25% 0.0%
Real Estate 8.67% 100.0%
Financial Services 11.08% 0.0%
Consumer Cyclical 12.12% 0.0%
Basic Materials 3.36% 0.0%

The Vanguard Mid-Cap Index Fund ETF Shares (VO) has the most exposure to the Technology sector at 22.01%. This is followed by Healthcare and Consumer Cyclical at 13.03% and 12.12% respectively. Basic Materials (3.36%), Energy (3.82%), and Utilities (5.12%) only make up 12.30% of the fund’s total assets.

VO’s mid-section with moderate exposure is comprised of Communication Services, Real Estate, Financial Services, Industrials, and Consumer Cyclical stocks at 5.61%, 8.67%, 11.08%, 11.92%, and 12.12%.

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%.

VO is 22.01% more exposed to the Technology sector than VNQ (22.01% vs 0.0%). VO’s exposure to Healthcare and Consumer Cyclical stocks is 13.03% higher and 12.12% higher respectively (13.03% vs. 0.0% and 12.12% vs. 0.0%). In total, Basic Materials, Energy, and Utilities also make up 12.30% more of the fund’s holdings compared to VNQ (12.30% vs. 0.00%).

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%.

VNQ - Holdings

VNQ Holdings Weight
Vanguard Real Estate II Index 11.62%
American Tower Corp 7.24%
Prologis Inc 5.33%
Crown Castle International Corp 5.01%
Equinix Inc 4.3%
Public Storage 2.85%
Simon Property Group Inc 2.52%
Digital Realty Trust Inc 2.49%
SBA Communications Corp 2.1%
Welltower Inc 2.09%

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%.

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Risk Analysis

VO VNQ
Mean Return 1.14 0.89
R-squared 92.22 44.4
Std. Deviation 15.65 16.13
Alpha -2.71 2.47
Beta 1.11 0.76
Sharpe Ratio 0.83 0.62
Treynor Ratio 11.32 11.9

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

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

VO’s Mean Return is 0.25 points higher than that of VNQ and its R-squared is 47.82 points higher. With a Standard Deviation of 15.65, VO is slightly less volatile than VNQ. The Alpha and Beta of VO are 5.18 points lower and 0.35 points higher than VNQ’s Alpha and Beta.

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Performance

Annual Returns

VO vs. VNQ - Annual Returns

Year VO VNQ
2020 18.22% -4.72%
2019 31.04% 28.91%
2018 -9.21% -5.95%
2017 19.25% 4.95%
2016 11.23% 8.53%
2015 -1.34% 2.37%
2014 13.76% 30.29%
2013 35.15% 2.42%
2012 15.98% 17.67%
2011 -1.96% 8.62%
2010 25.57% 28.44%

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 2014 was the strongest year for VNQ, returning 30.29% on an annual basis. The poorest year for VNQ in the last ten years was 2018, with a yield of -5.95%. Most years the Vanguard Real Estate Index Fund ETF Shares has given investors modest returns, such as in 2017, 2016, and 2011, when gains were 4.95%, 8.53%, and 8.62% respectively.

Portfolio Growth

VO vs. VNQ - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VO $10,000 $40,404 14.34%
VNQ $10,000 $29,506 11.05%

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 VNQ, the end total would have been $29,506. This equates to a $19,506 profit over 11 years and a compound annual growth rate (CAGR) of 11.05%.

VO’s CAGR is 3.29 percentage points higher than that of VNQ and as a result, would have yielded $10,898 more on a $10,000 investment. Thus, VO outperformed VNQ by 3.29% annually.


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