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VXUS vs. VMBS: What’s The Difference?

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

The expense ratio of VXUS is 0.03 percentage points higher than VMBS’s (0.08% vs. 0.05%). VXUS also has a high exposure to the financial services sector while VMBS is mostly comprised of AAA bonds. Overall, VXUS has provided higher returns than VMBS over the past ten years.

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

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Summary

VXUSVMBS
NameVanguard Total International Stock Index Fund ETF SharesVanguard Mortgage-Backed Securities Index Fund ETF Shares
CategoryForeign Large BlendIntermediate Government
IssuerVanguardVanguard
AUM404.73B16.61B
Avg. Return8.41%2.89%
Div. Yield2.44%1.23%
Expense Ratio0.08%0.05%

The Vanguard Total International Stock Index Fund ETF Shares (VXUS) is a Foreign Large Blend fund that is issued by Vanguard. It currently has 404.73B total assets under management and has yielded an average annual return of 8.41% over the past 10 years. The fund has a dividend yield of 2.44% with an expense ratio of 0.08%.

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%.

VXUS’s dividend yield is 1.21% higher than that of VMBS (2.44% vs. 1.23%). Also, VXUS yielded on average 5.51% more per year over the past decade (8.41% vs. 2.89%). The expense ratio of VXUS is 0.03 percentage points higher than VMBS’s (0.08% vs. 0.05%).

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Fund Composition

Holdings

VXUS - Holdings

VXUS HoldingsWeight
Taiwan Semiconductor Manufacturing Co Ltd1.62%
Tencent Holdings Ltd1.41%
Alibaba Group Holding Ltd Ordinary Shares1.26%
Nestle SA1.1%
Samsung Electronics Co Ltd1.05%
ASML Holding NV0.86%
Roche Holding AG0.81%
Toyota Motor Corp0.67%
LVMH Moet Hennessy Louis Vuitton SE0.61%
Novartis AG0.6%

VXUS’s Top Holdings are Taiwan Semiconductor Manufacturing Co Ltd, Tencent Holdings Ltd, Alibaba Group Holding Ltd Ordinary Shares, Nestle SA, and Samsung Electronics Co Ltd at 1.62%, 1.41%, 1.26%, 1.1%, and 1.05%.

ASML Holding NV (0.86%), Roche Holding AG (0.81%), and Toyota Motor Corp (0.67%) have a slightly smaller but still significant weight. LVMH Moet Hennessy Louis Vuitton SE and Novartis AG are also represented in the VXUS’s holdings at 0.61% and 0.6%.

VMBS - Holdings

VMBS Bond SectorsWeight
AAA100.01%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%
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

VXUSVMBS
Mean Return0.560.21
R-squared98.3965.78
Std. Deviation15.122.02
Alpha0.310.37
Beta0.990.54
Sharpe Ratio0.40.94
Treynor Ratio5.143.47

The Vanguard Total International Stock Index Fund ETF Shares (VXUS) has a Beta of 0.99 with a Mean Return of 0.56 and a Treynor Ratio of 5.14. Its R-squared is 98.39 while VXUS’s Alpha is 0.31. Furthermore, the fund has a Standard Deviation of 15.12 and a Sharpe Ratio of 0.4.

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

VXUS’s Mean Return is 0.35 points higher than that of VMBS and its R-squared is 32.61 points higher. With a Standard Deviation of 15.12, VXUS is slightly more volatile than VMBS. The Alpha and Beta of VXUS are 0.06 points lower and 0.45 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

VXUS vs. VMBS - Annual Returns

YearVXUSVMBS
202011.32%3.77%
201921.58%6.17%
2018-14.42%0.87%
201727.52%2.37%
20164.72%1.43%
2015-4.28%1.43%
2014-4.17%5.81%
201315.16%-1.28%
201218.22%2.47%
20110.0%5.89%
20100.0%5.24%

VXUS had its best year in 2017 with an annual return of 27.52%. VXUS’s worst year over the past decade yielded -14.42% and occurred in 2018. In most years the Vanguard Total International Stock Index Fund ETF Shares provided moderate returns such as in 2010, 2016, and 2020 where annual returns amounted to 0.0%, 4.72%, and 11.32% 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

VXUS vs. VMBS - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VXUS$10,000$19,3158.41%
VMBS$10,000$12,5272.89%

A $10,000 investment in VXUS would have resulted in a final balance of $19,315. This is a profit of $9,315 over 9 years and amounts to a compound annual growth rate (CAGR) of 8.41%.

With a $10,000 investment in VMBS, the end total would have been $12,527. This equates to a $2,527 profit over 9 years and a compound annual growth rate (CAGR) of 2.89%.

VXUS’s CAGR is 5.51 percentage points higher than that of VMBS and as a result, would have yielded $6,788 more on a $10,000 investment. Thus, VXUS outperformed VMBS by 5.51% annually.


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