Vanguard Intermediate-Term Treasury ETF (NASDAQ:VGIT) offers lower volatility and government backing, while Vanguard Intermediate-Term Corporate Bond ETF (NASDAQ:VCIT) provides higher income potential through exposure to investment-grade corporate debt.
Both funds target the middle of the yield curve, focusing on bond maturities between three and 10 years. Investors often use these intermediate-term instruments to balance the lower yields of short-term debt against the higher price sensitivity found at the long end of the curve. This comparison highlights the trade-off between credit risk and yield.
Snapshot (cost & size)
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
With identical expense ratios of 0.03%, neither fund holds a cost advantage. However, the Vanguard Intermediate-Term Corporate Bond ETF offers a higher payout, providing a yield gap of 1.04 percentage points over its Treasury-focused sibling.
Performance & risk comparison
What’s inside
Vanguard Intermediate-Term Treasury ETF holds 105 positions, consisting primarily of U.S. Treasury bonds. It was launched in 2009. Vanguard Intermediate-Term Treasury ETF has paid $2.29 per share over the trailing 12 months, which, on its recent ~$57.40 share price, works out to a 4% yield.
Vanguard Intermediate-Term Corporate Bond ETF is a fixed income fund that tracks the Bloomberg U.S. 5-10 Year Corporate Bond Index and holds 2,344 positions. Its portfolio comprises investment-grade fixed-income securities issued by industrial, utility, and financial companies. The fund is highly diversified, and no single position exceeds 0.29% of the portfolio. It was launched in 2009. Vanguard Intermediate-Term Corporate Bond ETF has paid $3.99 per share over the trailing 12 months, which, on its recent ~$79.25 share price, works out to a 5% yield.
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Which looks like the better buy
When comparing the Vanguard Intermediate-Term Treasury ETF (VGIT) and the Vanguard Intermediate-Term Corporate Bond ETF (VCIT), investors should consider several key factors. Let’s see what they tell us about each fund.
First, we should examine each fund’s strategy. Taking VGIT first, this fund focuses on intermediate-dated U.S. Treasuries, with maturities between 3 and 10 years. Since it holds U.S. Treasuries, it has virtually no credit risk. VCIT, on the other hand, holds corporate bonds with maturities between 5 and 10 years. VCIT holds high-grade corporate bonds, which carry some credit risk.
Two other important factors are historical performance and income potential. Over the last five years, VCIT has generated a total return of 4%, equating to a compound annual growth rate (CAGR) of 0.8%. VGIT, on the other hand, has delivered a total return of 0.3%, with a CAGR of 0.1%. As for income, VCIT, with its bevy of corporate bonds, boasts a higher dividend yield of 5%. VGIT has a lower dividend yield of 4%
One final factor to weigh is cost. But in this case, both funds have identical 0.03% annual expense ratios. Not only are these rates identical, but they are also exceptionally affordable.
In summary, VGIT and VCIT are both bond ETFs, but they target very different slices of the fixed-income market. VGIT will appeal to risk-averse fixed-income investors seeking to generate income with minimal credit risk. Those with a stronger appetite for volatility can consider VCIT, which delivers a higher yield and has generated greater returns over the last five years.
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Treasury Bonds vs. Corporate Bonds: Breaking Down VGIT and VCIT was originally published by The Motley Fool
