IGSB vs. VCSH: How These Similar Bond ETFs Compare on Fees, Risk, and Diversification

The key difference between the Vanguard Short-Term Corporate Bond ETF (NASDAQ:VCSH) and the iShares 1-5 Year Investment Grade Corporate Bond ETF (NASDAQ:IGSB) is breadth: IGSB is more diversified, while VCSH is modestly cheaper and larger in terms of its assets under management (AUM).

Both funds aim to provide steady income with limited interest rate risk by focusing on short-term, investment-grade U.S. corporate bonds. This comparison between VCSH and IGSB examines costs, returns, risk, and underlying portfolio differences to help clarify which approach may appeal to different fixed income investors.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500. The 1-yr return represents total return over the trailing 12 months.

In terms of fees and dividend income, investors won't experience significant differences between these two funds. VCSH is marginally more affordable on fees with its lower expense ratio, but IGSB offers a very slight edge in dividend payout.

Performance & risk comparison

What's inside

IGSB spreads its assets across a vast pool of 4,435 investment-grade U.S. corporate bonds, providing substantial diversification. It provides access to bonds with one- to five-year maturities, and the fund has an established history of close to 19 years.

VCSH, in contrast, maintains a smaller portfolio with 2,552 bond holdings. Like IGSB, it holds investment-grade corporate bonds with a dollar-weighted average maturity of one to five years, though it has a slightly shorter track record of 16 years.

For more guidance on ETF investing, check out the full guide at this link.

Foolish take

IGSB and VCSH are similar in many ways. They both hold thousands of short-term, investment-grade U.S. corporate bonds, they've earned similar one- and five-year total returns, and they have nearly identical dividend yields and expense ratios. They also have roughly the same risk profile, and with virtually the same max drawdown, neither has experienced more significant volatility than the other.

The primary difference between them comes down to diversification. IGSB holds close to 2,000 more bonds than VCSH, which can be an advantage for those looking to maximize their exposure to the corporate bond space.

However, VCSH has a much larger AUM, which can provide greater liquidity and, in some cases, a lower fee. Long-term investors may not be as impacted by AUM, but it's a factor to consider when deciding between these two very similar funds.

Glossary

ETF (Exchange-Traded Fund): An investment fund traded on stock exchanges, holding a basket of assets like stocks or bonds.
Expense ratio: The annual fee, as a percentage of assets, that a fund charges its investors.
Dividend yield: Annual income from dividends as a percentage of the investment's current price.
Beta: A measure of an investment's volatility compared to the overall market, often the S&P 500.
Assets under management (AUM): The total market value of assets a fund manages on behalf of investors.
Investment-grade: Bonds rated as relatively low risk of default by credit rating agencies.
Max drawdown: The largest percentage drop from a fund's peak value to its lowest point over a period.
Short-term bond: A bond with a maturity, or time until repayment, typically between one and five years.
Diversification: Spreading investments across various assets to reduce overall risk.
Financial services bonds: Bonds issued by companies in the banking, insurance, or financial sector.
Total return: The investment's price change plus all dividends and distributions, assuming those payouts are reinvested.

Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.