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VUG vs. VNQ: What’s The Difference?

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

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

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

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Summary

VUGVNQ
NameVanguard Growth Index Fund ETF SharesVanguard Real Estate Index Fund ETF Shares
CategoryLarge GrowthReal Estate
IssuerVanguardVanguard
AUM165.53B77.34B
Avg. Return17.58%11.05%
Div. Yield0.57%2.34%
Expense Ratio0.04%0.12%

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 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%.

VUG’s dividend yield is 1.77% lower than that of VNQ (0.57% vs. 2.34%). Also, VUG yielded on average 6.53% more per year over the past decade (17.58% vs. 11.05%). The expense ratio of VUG is 0.08 percentage points lower than VNQ’s (0.04% vs. 0.12%).

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Fund Composition

Industry Exposure

VUG vs. VNQ - Industry Exposure

VUGVNQ
Technology39.05%0.0%
Industrials5.13%0.0%
Energy0.32%0.0%
Communication Services16.49%0.0%
Utilities0.0%0.0%
Healthcare8.09%0.0%
Consumer Defensive2.41%0.0%
Real Estate2.46%100.0%
Financial Services6.75%0.0%
Consumer Cyclical17.78%0.0%
Basic Materials1.52%0.0%

The Vanguard Growth Index Fund ETF Shares (VUG) has the most exposure to the Technology sector at 39.05%. This is followed by Consumer Cyclical and Communication Services at 17.78% and 16.49% respectively. Energy (0.32%), Basic Materials (1.52%), and Consumer Defensive (2.41%) only make up 4.25% of the fund’s total assets.

VUG’s mid-section with moderate exposure is comprised of Real Estate, Industrials, Financial Services, Healthcare, and Communication Services stocks at 2.46%, 5.13%, 6.75%, 8.09%, and 16.49%.

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%.

VUG is 39.05% more exposed to the Technology sector than VNQ (39.05% vs 0.0%). VUG’s exposure to Consumer Cyclical and Communication Services stocks is 17.78% higher and 16.49% higher respectively (17.78% vs. 0.0% and 16.49% vs. 0.0%). In total, Energy, Basic Materials, and Consumer Defensive also make up 4.25% more of the fund’s holdings compared to VNQ (4.25% vs. 0.00%).

Holdings

VUG - Holdings

VUG HoldingsWeight
Apple Inc10.13%
Microsoft Corp9.52%
Amazon.com Inc6.88%
Facebook Inc Class A3.89%
Alphabet Inc Class A3.43%
Alphabet Inc Class C3.22%
Tesla Inc2.44%
NVIDIA Corp2.21%
Visa Inc Class A1.78%
PayPal Holdings Inc1.6%

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%.

VNQ - Holdings

VNQ HoldingsWeight
Vanguard Real Estate II Index11.62%
American Tower Corp7.24%
Prologis Inc5.33%
Crown Castle International Corp5.01%
Equinix Inc4.3%
Public Storage2.85%
Simon Property Group Inc2.52%
Digital Realty Trust Inc2.49%
SBA Communications Corp2.1%
Welltower Inc2.09%

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

VUGVNQ
Mean Return1.440.89
R-squared92.4844.4
Std. Deviation14.7616.13
Alpha1.812.47
Beta1.040.76
Sharpe Ratio1.130.62
Treynor Ratio16.1311.9

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

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

VUG’s Mean Return is 0.55 points higher than that of VNQ and its R-squared is 48.08 points higher. With a Standard Deviation of 14.76, VUG is slightly less volatile than VNQ. The Alpha and Beta of VUG are 0.66 points lower and 0.28 points higher than VNQ’s Alpha and Beta.

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Performance

Annual Returns

VUG vs. VNQ - Annual Returns

YearVUGVNQ
202040.16%-4.72%
201937.26%28.91%
2018-3.32%-5.95%
201727.8%4.95%
20166.13%8.53%
20153.32%2.37%
201413.62%30.29%
201332.38%2.42%
201217.03%17.67%
20111.87%8.62%
201017.11%28.44%

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 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

VUG vs. VNQ - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VUG$10,000$54,73517.58%
VNQ$10,000$29,50611.05%

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 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%.

VUG’s CAGR is 6.53 percentage points higher than that of VNQ and as a result, would have yielded $25,229 more on a $10,000 investment. Thus, VUG outperformed VNQ by 6.53% annually.


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