The Vanguard High Dividend Yield Index Fund ETF Shares (VYM) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. VYM is a Vanguard Large Value fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between VYM and VMBS? And which fund is better?
The expense ratio of VYM is 0.01 percentage points higher than VMBS’s (0.06% vs. 0.05%). VYM also has a high exposure to the financial services sector while VMBS is mostly comprised of AAA bonds. Overall, VYM has provided higher returns than VMBS over the past ten years.
In this article, we’ll compare VYM vs. VMBS. We’ll look at industry exposure and portfolio growth, as well as at their performance and annual returns. Moreover, I’ll also discuss VYM’s and VMBS’s holdings, risk metrics, and fund composition and examine how these affect their overall returns.
|Name||Vanguard High Dividend Yield Index Fund ETF Shares||Vanguard Mortgage-Backed Securities Index Fund ETF Shares|
|Category||Large Value||Intermediate Government|
The Vanguard High Dividend Yield Index Fund ETF Shares (VYM) is a Large Value fund that is issued by Vanguard. It currently has 48.5B total assets under management and has yielded an average annual return of 12.20% over the past 10 years. The fund has a dividend yield of 2.79% with an expense ratio of 0.06%.
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%.
VYM’s dividend yield is 1.56% higher than that of VMBS (2.79% vs. 1.23%). Also, VYM yielded on average 9.30% more per year over the past decade (12.20% vs. 2.89%). The expense ratio of VYM is 0.01 percentage points higher than VMBS’s (0.06% vs. 0.05%).
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|JPMorgan Chase & Co||3.53%|
|Johnson & Johnson||3.28%|
|The Home Depot Inc||2.59%|
|Procter & Gamble Co||2.48%|
|Bank of America Corp||2.35%|
|Exxon Mobil Corp||2.02%|
|Comcast Corp Class A||1.96%|
|Verizon Communications Inc||1.75%|
|Cisco Systems Inc||1.69%|
VYM’s Top Holdings are JPMorgan Chase & Co, Johnson & Johnson, The Home Depot Inc, Procter & Gamble Co, and Bank of America Corp at 3.53%, 3.28%, 2.59%, 2.48%, and 2.35%.
Exxon Mobil Corp (2.02%), Comcast Corp Class A (1.96%), and Verizon Communications Inc (1.75%) have a slightly smaller but still significant weight. Intel Corp and Cisco Systems Inc are also represented in the VYM’s holdings at 1.71% and 1.69%.
|VMBS Bond Sectors||Weight|
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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The Vanguard High Dividend Yield Index Fund ETF Shares (VYM) has a Standard Deviation of 12.69 with a Beta of 0.88 and a R-squared of 88.88. Its Alpha is -0.7 while VYM’s Sharpe Ratio is 0.93. Furthermore, the fund has a Mean Return of 1.04 and a Treynor Ratio of 13.24.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Standard Deviation of 2.02 with a Beta of 0.54 and a Treynor Ratio of 3.47. Its Sharpe Ratio is 0.94 while VMBS’s R-squared is 65.78. Furthermore, the fund has a Alpha of 0.37 and a Mean Return of 0.21.
VYM’s Mean Return is 0.83 points higher than that of VMBS and its R-squared is 23.10 points higher. With a Standard Deviation of 12.69, VYM is slightly more volatile than VMBS. The Alpha and Beta of VYM are 1.07 points lower and 0.34 points higher than VMBS’s Alpha and Beta.
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VYM had its best year in 2013 with an annual return of 30.26%. VYM’s worst year over the past decade yielded -5.87% and occurred in 2018. In most years the Vanguard High Dividend Yield Index Fund ETF Shares provided moderate returns such as in 2012, 2014, and 2010 where annual returns amounted to 12.68%, 13.47%, and 14.17% 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.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in VYM would have resulted in a final balance of $29,705. This is a profit of $19,705 over 10 years and amounts to a compound annual growth rate (CAGR) of 12.20%.
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%.
VYM’s CAGR is 9.30 percentage points higher than that of VMBS and as a result, would have yielded $16,440 more on a $10,000 investment. Thus, VYM outperformed VMBS by 9.30% annually.
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