VUG vs. IEF: What’s The Difference?

The Vanguard Growth Index Fund ETF Shares (VUG) and the iShares 7-10 Year Treasury Bond ETF (IEF) are both among the Top 100 ETFs. VUG is a Vanguard Large Growth fund and IEF is a iShares Long Government fund. So, what’s the difference between VUG and IEF? And which fund is better?

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

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

Summary

VUG IEF
Name Vanguard Growth Index Fund ETF Shares iShares 7-10 Year Treasury Bond ETF
Category Large Growth Long Government
Issuer Vanguard iShares
AUM 165.53B 13.44B
Avg. Return 17.58% 5.06%
Div. Yield 0.57% 0.84%
Expense Ratio 0.04% 0.15%

The Vanguard Growth Index Fund ETF Shares (VUG) is a Large Growth fund that is issued by Vanguard. It currently has 165.53B total assets under management and has yielded an average annual return of 17.58% over the past 10 years. The fund has a dividend yield of 0.57% with an expense ratio of 0.04%.

The iShares 7-10 Year Treasury Bond ETF (IEF) is a Long Government fund that is issued by iShares. It currently has 13.44B total assets under management and has yielded an average annual return of 5.06% over the past 10 years. The fund has a dividend yield of 0.84% with an expense ratio of 0.15%.

VUG’s dividend yield is 0.27% lower than that of IEF (0.57% vs. 0.84%). Also, VUG yielded on average 12.52% more per year over the past decade (17.58% vs. 5.06%). The expense ratio of VUG is 0.11 percentage points lower than IEF’s (0.04% vs. 0.15%).

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Fund Composition

Holdings

VUG - Holdings

VUG Holdings Weight
Apple Inc 10.13%
Microsoft Corp 9.52%
Amazon.com Inc 6.88%
Facebook Inc Class A 3.89%
Alphabet Inc Class A 3.43%
Alphabet Inc Class C 3.22%
Tesla Inc 2.44%
NVIDIA Corp 2.21%
Visa Inc Class A 1.78%
PayPal Holdings Inc 1.6%

VUG’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc Class A, and Alphabet Inc Class A at 10.13%, 9.52%, 6.88%, 3.89%, and 3.43%.

Alphabet Inc Class C (3.22%), Tesla Inc (2.44%), and NVIDIA Corp (2.21%) have a slightly smaller but still significant weight. Visa Inc Class A and PayPal Holdings Inc are also represented in the VUG’s holdings at 1.78% and 1.6%.

IEF - Holdings

IEF Bond Sectors Weight
AAA 100.0%
Others 0.0%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

IEF’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 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

VUG IEF
Mean Return 1.44 0.32
R-squared 92.48 77.56
Std. Deviation 14.76 5.42
Alpha 1.81 -1.2
Beta 1.04 1.59
Sharpe Ratio 1.13 0.6
Treynor Ratio 16.13 1.97

The Vanguard Growth Index Fund ETF Shares (VUG) has a R-squared of 92.48 with a Alpha of 1.81 and a Sharpe Ratio of 1.13. Its Beta is 1.04 while VUG’s Mean Return is 1.44. Furthermore, the fund has a Standard Deviation of 14.76 and a Treynor Ratio of 16.13.

The iShares 7-10 Year Treasury Bond ETF (IEF) has a Sharpe Ratio of 0.6 with a Mean Return of 0.32 and a R-squared of 77.56. Its Treynor Ratio is 1.97 while IEF’s Standard Deviation is 5.42. Furthermore, the fund has a Alpha of -1.2 and a Beta of 1.59.

VUG’s Mean Return is 1.12 points higher than that of IEF and its R-squared is 14.92 points higher. With a Standard Deviation of 14.76, VUG is slightly more volatile than IEF. The Alpha and Beta of VUG are 3.01 points higher and 0.55 points lower than IEF’s Alpha and Beta.

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Performance

Annual Returns

VUG vs. IEF - Annual Returns

Year VUG IEF
2020 40.16% 9.84%
2019 37.26% 8.38%
2018 -3.32% 0.82%
2017 27.8% 2.47%
2016 6.13% 1.0%
2015 3.32% 1.55%
2014 13.62% 8.92%
2013 32.38% -6.12%
2012 17.03% 4.06%
2011 1.87% 15.46%
2010 17.11% 9.29%

VUG had its best year in 2020 with an annual return of 40.16%. VUG’s worst year over the past decade yielded -3.32% and occurred in 2018. In most years the Vanguard Growth Index Fund ETF Shares provided moderate returns such as in 2014, 2012, and 2010 where annual returns amounted to 13.62%, 17.03%, and 17.11% respectively.

The year 2011 was the strongest year for IEF, returning 15.46% on an annual basis. The poorest year for IEF in the last ten years was 2013, with a yield of -6.12%. Most years the iShares 7-10 Year Treasury Bond ETF has given investors modest returns, such as in 2017, 2012, and 2019, when gains were 2.47%, 4.06%, and 8.38% respectively.

Portfolio Growth

VUG vs. IEF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VUG $10,000 $54,735 17.58%
IEF $10,000 $16,936 5.06%

A $10,000 investment in VUG would have resulted in a final balance of $54,735. This is a profit of $44,735 over 11 years and amounts to a compound annual growth rate (CAGR) of 17.58%.

With a $10,000 investment in IEF, the end total would have been $16,936. This equates to a $6,936 profit over 11 years and a compound annual growth rate (CAGR) of 5.06%.

VUG’s CAGR is 12.52 percentage points higher than that of IEF and as a result, would have yielded $37,799 more on a $10,000 investment. Thus, VUG outperformed IEF by 12.52% annually.


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