Which Is the Better Vanguard Short-Term Bond ETF, BSV or VGSH?

The Vanguard Short-Term Treasury ETF (NASDAQ:VGSH) and Vanguard Short-Term Bond ETF (NYSEMKT:BSV) both keep costs and yields low, but BSV’s broader bond mix and higher recent returns come with somewhat higher risk and volatility.

Both VGSH and BSV target short-term, high-quality bonds, but their approaches differ. VGSH invests primarily in U.S. Treasuries, while BSV includes government, investment-grade corporate, and some international dollar-denominated bonds. This comparison explores how those choices affect cost, returns, risk, and portfolio makeup.

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.

Costs are identical at 0.03% for both funds, and both currently yield 3.9%, so neither has an edge on fees or income potential.

Performance & risk comparison

BSV posted a higher return over the past year, but over five years, both funds delivered nearly identical growth on a $1,000 investment. BSV’s broader bond mix led to a deeper maximum drawdown, signaling somewhat greater risk during market stress.

What's inside

The Vanguard Short-Term Bond ETF holds about 30 bonds, spanning U.S. government, investment-grade corporate, and international dollar-denominated debt. The largest positions include United States Treasury Note/Bond 3.88% 03/31/2031, US Dollar, and United States Treasury Note/Bond 3.50% 01/31/2028. The fund, launched 19 years ago, offers broad short-term bond exposure but may fluctuate more than a pure Treasury fund.

Vanguard Short-Term Treasury ETF is solely invested in U.S. Treasuries, with 93 holdings concentrated in maturities of one to three years. Its top bonds are United States Treasury Note/Bond 3.50% 01/31/2028, United States Treasury Note/Bond 3.88% 07/31/2027, and United States Treasury Note/Bond 4.25% 02/28/2029. This focus results in minimal credit risk and cash-like volatility, but a narrower opportunity set than BSV.

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

What this means for investors

Bonds play a key role in an investment portfolio, with short-term bonds providing a place to park your cash for higher yields than money market funds. They also reduce interest rate risk compared to longer-term bonds given the short maturities.

Vanguard is known for low costs, as is the case for the two ETFs discussed here, but which to invest in comes down to some subtle differences.

The Vanguard Short-Term Treasury ETF (VGSH) furnishes maximum safety and stability for investors who prioritize capital preservation, thanks to its focus on U.S. Treasuries. Its lower max drawdown demonstrates this. The tradeoff is reduced income potential, as seen in its lower one-year return.

The Vanguard Short-Term Bond ETF (BSV) attempts to deliver a higher yield than VGSH through its mix of corporate and international debt, while delivering stability by including U.S. Treasuries as well. This diversification is a strength, as its one-year return suggests, but it leads to greater risk as well, which is seen in its higher max drawdown.

Ultimately, VGSH and BSV are very similar ETFs in terms of cost and performance. Conservative investors may prefer VGSH, while those willing to take on slightly higher risk for the potential of a greater return may find BSV more appealing.

Robert Izquierdo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Bond Index Funds - Vanguard Short-Term Bond ETF. The Motley Fool has a disclosure policy.