Skip to content

VYM vs. VMBS: What’s The Difference?

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.

Introduction To Mutual Funds
Introduction To Mutual Funds
TIP: Keep track of all your investments with Personal Capital. I use this amazing tool to aggregate all investments in one place and make sure I'm on track to financial freedom. Oh, and did I mention it's free? Try it out here (link to Personal Capital).

Summary

VYMVMBS
NameVanguard High Dividend Yield Index Fund ETF SharesVanguard Mortgage-Backed Securities Index Fund ETF Shares
CategoryLarge ValueIntermediate Government
IssuerVanguardVanguard
AUM48.5B16.61B
Avg. Return12.20%2.89%
Div. Yield2.79%1.23%
Expense Ratio0.06%0.05%

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%).

FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).

Fund Composition

Holdings

VYM - Holdings

VYM HoldingsWeight
JPMorgan Chase & Co3.53%
Johnson & Johnson3.28%
The Home Depot Inc2.59%
Procter & Gamble Co2.48%
Bank of America Corp2.35%
Exxon Mobil Corp2.02%
Comcast Corp Class A1.96%
Verizon Communications Inc1.75%
Intel Corp1.71%
Cisco Systems Inc1.69%

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 - 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.

NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).

Risk Analysis

VYMVMBS
Mean Return1.040.21
R-squared88.8865.78
Std. Deviation12.692.02
Alpha-0.70.37
Beta0.880.54
Sharpe Ratio0.930.94
Treynor Ratio13.243.47

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.

FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!

Performance

Annual Returns

VYM vs. VMBS - Annual Returns

YearVYMVMBS
20201.14%3.77%
201924.2%6.17%
2018-5.87%0.87%
201716.42%2.37%
201616.87%1.43%
20150.33%1.43%
201413.47%5.81%
201330.26%-1.28%
201212.68%2.47%
201110.5%5.89%
201014.17%5.24%

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.

Portfolio Growth

VYM vs. VMBS - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VYM$10,000$29,70512.20%
VMBS$10,000$13,2652.89%

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.


Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!

2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.

5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply

Your email address will not be published.