VGIT vs FIGB: Which Bond ETF is Better on Cost, Yield, and Risk?

Vanguard Intermediate-Term Treasury ETF (NASDAQ:VGIT) offers lower costs and pure Treasury exposure, while Fidelity Investment Grade Bond ETF (NYSEMKT:FIGB) provides broader corporate exposure and a higher trailing yield.

Fixed income investors often face a choice between the absolute safety of government-backed debt and the slightly higher income potential of a diversified investment-grade portfolio. While both funds focus on the intermediate portion of the maturity curve, they offer distinct risk profiles. This comparison examines how the Vanguard fund’s Treasury focus compares with the broader mandate of the Fidelity ETF.

Snapshot (cost & size)

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

The Vanguard fund is significantly more affordable, sporting a razor-thin expense ratio of just 0.03%. In contrast, FIGB charges 0.36%, a substantial cost difference for fixed-income products, where returns are often compressed. However, the Fidelity fund may appeal to income seekers because it offers a higher trailing-12-month payout, maintaining a 0.24 percentage point yield gap over the Vanguard fund.

Performance & risk comparison

The performance table illustrates that the Fidelity fund's corporate exposure led to a higher total return over the last year. However, investors may note that FIGB experienced a deeper maximum drawdown of 18.1% compared to VGIT’s 15.0%, reflecting the additional risk inherent in investment-grade corporate bonds during market stress.

What's inside

The Fidelity Investment Grade Bond ETF (FIGB) serves as a one-stop core bond solution, providing access to a range of high-grade sectors beyond Treasuries. Its portfolio holds 180 securities, providing broader diversification than its government-only counterpart. This broader approach explains its higher beta of 0.25, as corporate debt typically exhibits greater price volatility than Treasuries. This fund, launched in 2021, paid $1.76 per share over the trailing 12 months.

The Vanguard Intermediate-Term Treasury ETF (VGIT) maintains a strict focus on U.S. Treasury bonds with maturities between three and 10 years. The fund holds 76 issues, which is fewer than FIGB, but offers high credit safety because the U.S. government backs the underlying securities. This Vanguard fund, launched in 2009, has a trailing-12-month dividend of $2.27 per share.

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Which looks like the better buy

The Vanguard Intermediate-Term Treasury ETF (VGIT) and the Fidelity Investment Grade Bond ETF (FIGB) are both bond exchange-traded funds (ETFs). Here is how they compare.

First, there’s FIGB. This fund holds debt from investment-grade issuers, meaning companies and institutions with the highest credit ratings. The fund holds government bonds (47% of holdings), corporate bonds (24%), mortgage-backed securities (16%), and asset-backed securities (11%). With its wide mix of bonds, the fund currently has a dividend yield of about 4.1% and an expense ratio of 0.36%.

Then, there’s VGIT. This fund holds intermediate-dated government bonds, with maturities of around 3 to 7 years. VGIT only holds U.S. Treasury debt. That means the fund’s portfolio has very low credit risk—the risk that an issuer may default on its loan obligations. However, since the fund’s holdings are of the highest quality, the yields paid by those bonds are lower. In turn, VGIT has a dividend yield of 3.8%, which is lower than FIGB’s. However, it also has a much lower expense ratio of 0.03%, meaning investors save on fees.

Turning to performance, neither fund has delivered significant gains over the past five years. VGIT has advanced by 1%, equating to a compound annual growth rate (CAGR) of 0.2%, while FIGB has advanced by 2%, with a CAGR of 0.4%. By contrast, the S&P 500 has delivered a total return of 116% over this same period, with a CAGR of 15.8%.

In summary, investors who are seeking income from their portfolios may want to consider these two ETFs. FIGB delivers higher income through its higher dividend yield, while VGIT charges far lower fees.

Jake Lerch 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.