This Vanguard ETF Holds More Assets Than Its iShares Rival. Is It a Better Buy?

The Vanguard Short-Term Corporate Bond ETF (NASDAQ:VCSH) and the iShares 1-5 Year Investment Grade Corporate Bond ETF (NASDAQ:IGSB) track similar parts of the investment-grade corporate bond market, but differ in fund size, underlying holdings, and cost structure.

Both ETFs aim to deliver steady income and low volatility by focusing on short-term, high-quality U.S. corporate bonds. Investors comparing the two may notice that IGSB spreads its bets across thousands of bonds while VCSH takes a more concentrated approach, even as both funds target maturities between one and five years.

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.

VCSH is slightly more affordable, with a 0.03% expense ratio versus 0.04% for IGSB, and both funds pay out a similar yield of 4.3%, making cost the main differentiator in this area.

Performance & risk comparison

What's inside

iShares 1-5 Year Investment Grade Corporate Bond ETF has a long track record at nearly 19 years and holds a broad mix of about 4,435 securities, with a portfolio dominated by cash and equivalents. The fund's sector allocation is heavily tilted toward cash and others, which may reflect a very diversified but less concentrated approach.

Vanguard Short-Term Corporate Bond ETF, in contrast, is much more concentrated with 2,554 holdings. Its holdings have an average maturity of three years.

There are no notable quirks or unusual strategies in either fund.

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

Foolish take

Investing in corporate bonds can make good sense for multiple reasons. Either of these ETFs could fill the role of corporate bond holdings in a portfolio. Some investors, though, may want to own individual corporate bonds.

Individual corporate bonds give investors control over maturity and specific company selection. That could aid in giving investors the ability to build a bond ladder or structure their portfolio to match specific income needs or duration requirements.

For those without the time or inclination, though, these ETFs both fit the bill. While assets under management with the Vanguard fund are double that of IGSB, that shouldn't be a big factor for passive investors. The slight cost advantage that Vanguard holds is more meaningful.

Yet with expenses as close as these are, investors should feel comfortable with either ETF. It might just come down to whether one feels better with one of these fund management companies.

Glossary

ETF: Exchange-Traded Fund; a 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 to cover operating costs.
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, typically the S&P 500.
AUM: Assets Under Management; the total market value of assets a fund manages for investors.
Max drawdown: The largest percentage drop from a fund's peak value to its lowest point over a period.
Investment-grade: Bonds rated as relatively low risk of default by credit rating agencies.
Securities: Financial instruments that can be traded, such as stocks, bonds, or cash equivalents.
Concentrated approach: Investment strategy focusing on a smaller number of holdings, increasing exposure to each.
Sector allocation: The distribution of a fund's assets across different industry sectors.
Total return: The overall return from an investment, including price changes and any income received, like dividends.
Trailing 12 months (1-yr return): Performance measured over the most recent 12-month period.

Howard Smith 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.