Vanguard VCSH vs. iShares IGSB: How Two Short-Term Bond ETFs Deliver Stability in Different Ways

The two short-term corporate bond ETFs may appear interchangeable, but how they build their portfolios can determine the stability and income investors ultimately receive.

• Costs are nearly identical, but iShares 1-5 Year Investment Grade Corporate Bond ETF offers a slightly higher yield than Vanguard Short-Term Corporate Bond ETF
• Both ETFs delivered the same 1-year return and nearly identical risk profiles, with minimal drawdowns over five year
• Vanguard Short-Term Corporate Bond ETF reports fewer line items due to sampling but still owns thousands of bonds, while iShares 1-5 Year Investment Grade Corporate Bond ETF offers much broader diversification.

Vanguard Short-Term Corporate Bond ETF (VCSH) and iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB) look similar on costs and recent returns, but differ in yield and portfolio breadth.

Both funds seek to deliver current income with limited volatility by focusing on investment-grade U.S. corporate bonds with short maturities. While VCSH is known for its low cost and streamlined sampling approach, which captures the investment-grade short-term universe without holding every individual bond, IGSB stands out for its vast portfolio and slightly higher payout, making the match-up relevant for conservative income investors.

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.

Costs are nearly indistinguishable, with VCSH just edging out IGSB by 0.01 percentage points on fees, but IIGSB currently distributes a slightly higher yield (4.4% vs 4.3%), giving income-focused investors a modest edge.

Performance & risk comparison

Both ETFs experienced nearly identical maximum drawdowns over the past five years, and a $1,000 investment in either would have resulted in a very similar outcome. IGSB’s slightly lower beta indicates marginally less sensitivity to equity markets, though the practical difference is small for most investors.

What's inside

IGSB focuses exclusively on U.S. dollar-denominated, investment-grade corporate bonds with one- to five-year maturities. IGSB’s massive roster of more than four thousand bonds spreads credit exposure widely, reducing the impact of any single issuer. Its holdings span the full landscape of investment-grade corporates, making it a broad and stable vehicle for short-duration income.

VCSH tracks the same universe through a sampling approach, which means it reports fewer line items but still reflects the broader short-term corporate bond market. Its focus results in a cleaner maturity profile and slightly more predictable rate sensitivity compared to IGSB.

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Foolish take

Short-term corporate bond ETFs often look interchangeable at first glance, yet the way they build and balance their portfolios can influence how reliably they deliver income and stability over time. IGSB leans on scale to do that work. By holding more than four thousand individual bonds, it spreads credit exposure across a wide range of issuers and industries. That breadth produces a smoother stream of income and reduces the impact of any single credit event, which is valuable in a corner of the market where investors prize consistency. Its slightly higher yield also gives income seekers a small but tangible edge.

VCSH approaches the same universe with a more intentional structure. Its sampling method produces a cleaner maturity profile and helps the fund respond to rate movements more predictably. That cost efficiency and structural clarity appeal to investors who want their short-term bond allocation to feel steady and easy to maintain.

Both funds serve long-term investors well, and they are built with different priorities. IGSB excels when broad diversification and income are the guiding goals. VCSH stands out when cost discipline and consistent rate sensitivity matter more. The better fit is simply the one whose structure aligns with how you expect your short-term bonds to protect the rest of your portfolio.

Glossary

ETF: Exchange-traded fund; a pooled investment fund traded on stock exchanges, holding assets like stocks or bonds.
Expense ratio: Annual fund operating expenses expressed as a percentage of average assets under management.
Dividend yield: Annual income from dividends as a percentage of the fund's current price.
Beta: A measure of an investment’s volatility compared to the overall market, typically the S&P 500.
Drawdown: The decline from a fund’s peak value to its lowest point over a specified period.
AUM: Assets under management; the total market value of assets a fund manages for investors.
Investment-grade: Bonds rated as relatively low risk of default by major credit rating agencies.
Corporate bond: A debt security issued by a corporation to raise capital, typically paying periodic interest.
Leverage: The use of borrowed money to increase potential investment returns, which also increases risk.
Currency hedging: Strategies used to reduce the impact of currency exchange rate fluctuations on investments.
Diversification: Spreading investments across various assets to reduce overall risk.
Max drawdown: The largest observed loss from a fund’s peak to its lowest point over a specific time frame.

Eric Trie 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.