VTV vs. VMBS: What’s The Difference?

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

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

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

Summary

VTV VMBS
Name Vanguard Value Index Fund ETF Shares Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Large Value Intermediate Government
Issuer Vanguard Vanguard
AUM 125.77B 16.61B
Avg. Return 12.07% 2.89%
Div. Yield 2.15% 1.23%
Expense Ratio 0.04% 0.05%

The Vanguard Value Index Fund ETF Shares (VTV) is a Large Value fund that is issued by Vanguard. It currently has 125.77B total assets under management and has yielded an average annual return of 12.07% over the past 10 years. The fund has a dividend yield of 2.15% 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%.

VTV’s dividend yield is 0.92% higher than that of VMBS (2.15% vs. 1.23%). Also, VTV yielded on average 9.18% more per year over the past decade (12.07% vs. 2.89%). The expense ratio of VTV is 0.01 percentage points lower than VMBS’s (0.04% vs. 0.05%).

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Fund Composition

Holdings

VTV - Holdings

VTV Holdings Weight
Berkshire Hathaway Inc Class B 2.98%
JPMorgan Chase & Co 2.82%
Johnson & Johnson 2.6%
UnitedHealth Group Inc 2.27%
Procter & Gamble Co 1.98%
Bank of America Corp 1.91%
Exxon Mobil Corp 1.6%
Comcast Corp Class A 1.57%
Intel Corp 1.36%
Verizon Communications Inc 1.32%

VTV’s Top Holdings are Berkshire Hathaway Inc Class B, JPMorgan Chase & Co, Johnson & Johnson, UnitedHealth Group Inc, and Procter & Gamble Co at 2.98%, 2.82%, 2.6%, 2.27%, and 1.98%.

Bank of America Corp (1.91%), Exxon Mobil Corp (1.6%), and Comcast Corp Class A (1.57%) have a slightly smaller but still significant weight. Intel Corp and Verizon Communications Inc are also represented in the VTV’s holdings at 1.36% and 1.32%.

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

VTV VMBS
Mean Return 1.05 0.21
R-squared 92.61 65.78
Std. Deviation 13.78 2.02
Alpha -1.92 0.37
Beta 0.98 0.54
Sharpe Ratio 0.87 0.94
Treynor Ratio 11.94 3.47

The Vanguard Value Index Fund ETF Shares (VTV) has a Treynor Ratio of 11.94 with a Mean Return of 1.05 and a Beta of 0.98. Its Alpha is -1.92 while VTV’s Sharpe Ratio is 0.87. Furthermore, the fund has a R-squared of 92.61 and a Standard Deviation of 13.78.

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

VTV’s Mean Return is 0.84 points higher than that of VMBS and its R-squared is 26.83 points higher. With a Standard Deviation of 13.78, VTV is slightly more volatile than VMBS. The Alpha and Beta of VTV are 2.29 points lower and 0.44 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

VTV vs. VMBS - Annual Returns

Year VTV VMBS
2020 2.23% 3.77%
2019 25.85% 6.17%
2018 -5.39% 0.87%
2017 17.12% 2.37%
2016 16.88% 1.43%
2015 -0.89% 1.43%
2014 13.19% 5.81%
2013 33.03% -1.28%
2012 15.19% 2.47%
2011 1.16% 5.89%
2010 14.45% 5.24%

VTV had its best year in 2013 with an annual return of 33.03%. VTV’s worst year over the past decade yielded -5.39% and occurred in 2018. In most years the Vanguard Value Index Fund ETF Shares provided moderate returns such as in 2014, 2010, and 2012 where annual returns amounted to 13.19%, 14.45%, and 15.19% 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

VTV vs. VMBS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VTV $10,000 $28,976 12.07%
VMBS $10,000 $13,265 2.89%

A $10,000 investment in VTV would have resulted in a final balance of $28,976. This is a profit of $18,976 over 10 years and amounts to a compound annual growth rate (CAGR) of 12.07%.

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%.

VTV’s CAGR is 9.18 percentage points higher than that of VMBS and as a result, would have yielded $15,711 more on a $10,000 investment. Thus, VTV outperformed VMBS by 9.18% annually.


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