VOE vs. VMBS: What’s The Difference?

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

The expense ratio of VOE is 0.02 percentage points higher than VMBS’s (0.07% vs. 0.05%). VOE also has a high exposure to the financial services sector while VMBS is mostly comprised of AAA bonds. Overall, VOE has provided higher returns than VMBS over the past 10 years.

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

Summary

VOE VMBS
Name Vanguard Mid-Cap Value Index Fund ETF Shares Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Mid-Cap Value Intermediate Government
Issuer Vanguard Vanguard
AUM 26.78B 16.61B
Avg. Return 12.52% 2.89%
Div. Yield 1.87% 1.23%
Expense Ratio 0.07% 0.05%

The Vanguard Mid-Cap Value Index Fund ETF Shares (VOE) is a Mid-Cap Value fund that is issued by Vanguard. It currently has 26.78B total assets under management and has yielded an average annual return of 12.52% over the past 10 years. The fund has a dividend yield of 1.87% with an expense ratio of 0.07%.

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%.

VOE’s dividend yield is 0.64% higher than that of VMBS (1.87% vs. 1.23%). Also, VOE yielded on average 9.63% more per year over the past decade (12.52% vs. 2.89%). The expense ratio of VOE is 0.02 percentage points higher than VMBS’s (0.07% vs. 0.05%).

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Fund Composition

Holdings

VOE - Holdings

VOE Holdings Weight
Carrier Global Corp Ordinary Shares 1.28%
International Flavors & Fragrances Inc 1.13%
Motorola Solutions Inc 1.12%
Discover Financial Services 1.09%
Welltower Inc 1.05%
Corteva Inc 0.99%
Valero Energy Corp 0.97%
Corning Inc 0.95%
Willis Towers Watson PLC 0.9%
D.R. Horton Inc 0.89%

VOE’s Top Holdings are Carrier Global Corp Ordinary Shares, International Flavors & Fragrances Inc, Motorola Solutions Inc, Discover Financial Services, and Welltower Inc at 1.28%, 1.13%, 1.12%, 1.09%, and 1.05%.

Corteva Inc (0.99%), Valero Energy Corp (0.97%), and Corning Inc (0.95%) have a slightly smaller but still significant weight. Willis Towers Watson PLC and D.R. Horton Inc are also represented in the VOE’s holdings at 0.9% and 0.89%.

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

VOE VMBS
Mean Return 1.05 0.21
R-squared 88.76 65.78
Std. Deviation 15.98 2.02
Alpha -3.77 0.37
Beta 1.11 0.54
Sharpe Ratio 0.75 0.94
Treynor Ratio 10.19 3.47

The Vanguard Mid-Cap Value Index Fund ETF Shares (VOE) has a Beta of 1.11 with a Mean Return of 1.05 and a Alpha of -3.77. Its Standard Deviation is 15.98 while VOE’s Sharpe Ratio is 0.75. Furthermore, the fund has a Treynor Ratio of 10.19 and a R-squared of 88.76.

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

VOE’s Mean Return is 0.84 points higher than that of VMBS and its R-squared is 22.98 points higher. With a Standard Deviation of 15.98, VOE is slightly more volatile than VMBS. The Alpha and Beta of VOE are 4.14 points lower and 0.57 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

VOE vs. VMBS - Annual Returns

Year VOE VMBS
2020 2.5% 3.77%
2019 27.98% 6.17%
2018 -12.41% 0.87%
2017 17.05% 2.37%
2016 15.26% 1.43%
2015 -1.8% 1.43%
2014 13.98% 5.81%
2013 37.65% -1.28%
2012 16.04% 2.47%
2011 -0.32% 5.89%
2010 21.83% 5.24%

VOE had its best year in 2013 with an annual return of 37.65%. VOE’s worst year over the past decade yielded -12.41% and occurred in 2018. In most years the Vanguard Mid-Cap Value Index Fund ETF Shares provided moderate returns such as in 2014, 2016, and 2012 where annual returns amounted to 13.98%, 15.26%, and 16.04% 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

VOE vs. VMBS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VOE $10,000 $27,625 12.52%
VMBS $10,000 $13,265 2.89%

A $10,000 investment in VOE would have resulted in a final balance of $27,625. This is a profit of $17,625 over 10 years and amounts to a compound annual growth rate (CAGR) of 12.52%.

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%.

VOE’s CAGR is 9.63 percentage points higher than that of VMBS and as a result, would have yielded $14,360 more on a $10,000 investment. Thus, VOE outperformed VMBS by 9.63% annually.


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