Intermediate Treasury ETFs: Vanguard's VGIT Cuts Costs to the Bone While iShares' IEI Emphasizes Stability

Vanguard Intermediate-Term Treasury ETF (NASDAQ:VGIT) stands out for its low costs and modestly higher yield, while iShares 3-7 Year Treasury Bond ETF (NASDAQ:IEI) brings a slightly stronger recent performance and a narrower historical drawdown.

Both of these exchange-traded funds aim to provide investors with exposure to intermediate U.S. Treasury bonds, but they take subtly different approaches: VGIT targets maturities from three to 10 years, while IEI narrows in on the three- to seven-year segment. Here is how the two compare on cost, returns, risk, and composition.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.

VGIT is more affordable, with an expense ratio of 0.03% compared to IEI’s 0.15%. VGIT also offers a modestly higher yield, so cost-conscious investors prioritizing income may gravitate toward it, while IEI comes at a higher price for its slightly narrower focus.

Performance & risk comparison

What's inside

IEI tracks U.S. Treasury bonds with maturities between three and seven years, offering a focused portfolio of 83 holdings and nearly two decades of operating history. Its top positions include Treasury Note 4.07%, Treasury Note 3.58%, and Treasury Note 2.92%, and the fund has no notable structural quirks or overlays.

VGIT, by contrast, casts a slightly wider net across the intermediate-term Treasury spectrum (three to 10 years), holding 105 U.S. Treasury issues. The fund’s top holdings are United States Treasury Note/Bond 2.03%, United States Treasury Note/Bond 1.98%, and United States Treasury Note/Bond 1.97%.

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What this means for investors

For investors seeking stability and reliable income, Treasury ETFs like the Vanguard's VGIT and iShares' IEI are strong options. Both funds invest in U.S. government bonds with similar maturity ranges, making them ideal for conservative investors looking to reduce portfolio volatility or preserve capital during uncertain times.

The standout difference lies in costs and yield. VGIT charges an ultra-low expense ratio of just 0.04%, compared to IEI's 0.15% -- a meaningful gap over time for buy-and-hold investors. VGIT also edges out IEI slightly on dividend yield, currently offering around 3.8% versus IEI's 3.4%. For income-focused retirees or conservative savers, these small advantages add up.

However, IEI brings its own strengths. It has demonstrated modestly better recent performance and experienced a shallower maximum drawdown during the 2022 bond market rout, suggesting slightly better downside protection during volatile periods.

Cost-conscious investors who prioritize long-term value should favor VGIT's rock-bottom fees, while those willing to pay a modest premium for potentially smoother performance during market stress might prefer IEI. Either way, both funds deliver the safety and predictability that Treasury investors value most.

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 shareholders.
Dividend yield: Annual dividends paid by a fund, expressed as a percentage of its current price.
Beta: A measure of an investment's volatility compared to the overall market, often the S&P 500.
AUM (Assets Under Management): The total market value of assets that a fund manages on behalf of investors.
Max drawdown: The largest percentage drop from a fund's peak value to its lowest point over a specific period.
Intermediate-term Treasury bonds: U.S. government bonds with maturities typically between three and ten years.
Holdings: The individual securities or assets owned within a fund or portfolio.
Structural overlay: An additional investment strategy or feature layered on top of a fund's main holdings.

Sara Appino 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.