VUG vs. VMBS: What’s The Difference?

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

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

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

Summary

VUG VMBS
Name Vanguard Growth Index Fund ETF Shares Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Large Growth Intermediate Government
Issuer Vanguard Vanguard
AUM 165.53B 16.61B
Avg. Return 17.58% 2.89%
Div. Yield 0.57% 1.23%
Expense Ratio 0.04% 0.05%

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 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%.

VUG’s dividend yield is 0.66% lower than that of VMBS (0.57% vs. 1.23%). Also, VUG yielded on average 14.69% more per year over the past decade (17.58% vs. 2.89%). The expense ratio of VUG is 0.01 percentage points lower than VMBS’s (0.04% vs. 0.05%).

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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%.

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

VUG VMBS
Mean Return 1.44 0.21
R-squared 92.48 65.78
Std. Deviation 14.76 2.02
Alpha 1.81 0.37
Beta 1.04 0.54
Sharpe Ratio 1.13 0.94
Treynor Ratio 16.13 3.47

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

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

VUG’s Mean Return is 1.23 points higher than that of VMBS and its R-squared is 26.70 points higher. With a Standard Deviation of 14.76, VUG is slightly more volatile than VMBS. The Alpha and Beta of VUG are 1.44 points higher and 0.50 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

VUG vs. VMBS - Annual Returns

Year VUG VMBS
2020 40.16% 3.77%
2019 37.26% 6.17%
2018 -3.32% 0.87%
2017 27.8% 2.37%
2016 6.13% 1.43%
2015 3.32% 1.43%
2014 13.62% 5.81%
2013 32.38% -1.28%
2012 17.03% 2.47%
2011 1.87% 5.89%
2010 17.11% 5.24%

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 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

VUG vs. VMBS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VUG $10,000 $46,738 17.58%
VMBS $10,000 $13,265 2.89%

A $10,000 investment in VUG would have resulted in a final balance of $46,738. This is a profit of $36,738 over 10 years and amounts to a compound annual growth rate (CAGR) of 17.58%.

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%.

VUG’s CAGR is 14.69 percentage points higher than that of VMBS and as a result, would have yielded $33,473 more on a $10,000 investment. Thus, VUG outperformed VMBS by 14.69% annually.


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