Vanguard ETF Tops iShares Peer in Yield and Cost Efficiency

The Vanguard Intermediate-Term Treasury ETF (NASDAQ:VGIT) and the iShares 3-7 Year Treasury Bond ETF (NASDAQ:IEI) Both offer high-quality government bond exposure, but VGIT carries a lower cost and slightly longer maturity profile.

Investors seeking a haven often turn to intermediate U.S. Treasuries to balance yield and interest rate risk. By focusing on the middle of the yield curve, these ETFs aim to provide higher returns than cash-like instruments while avoiding the volatility of long-term Treasury bonds. While both funds hold government-backed debt, IEI targets a tighter three- to seven-year window, whereas VGIT extends its reach to 10 years.

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 the clear leader in cost efficiency, charging an expense ratio of 0.03%, which is 0.12 percentage points lower than its iShares peer. Additionally, the Vanguard fund offers a higher payout, with a trailing-12-month distribution yield of 3.90% compared to 3.60% for the iShares fund.

Performance & risk comparison

What's inside

The iShares 3-7 Year Treasury Bond ETF (NASDAQ:IEI) It is a fixed-income fund holding 82 U.S. Treasury securities with remaining maturities between three and seven years. Its portfolio is constructed to mirror the returns of government-backed debt within this specific duration window. Its largest positions include various Treasury notes, such as the Treasury Note 4.38% 11/30/2030, Treasury Note 4.00% 02/28/2030, and Treasury Note 1.38% 11/15/2031. This fund was launched in 2007 and has a trailing-12-month dividend of $4.26 per share.

The Vanguard Intermediate-Term Treasury ETF (NASDAQ:VGIT) It is a fixed-income fund that tracks a slightly broader three- to ten-year maturity range, which may increase its sensitivity to interest rate changes. It holds 76 securities, and its largest positions include the United States Treasury Note/Bond 4.63% 02/15/2035, United States Treasury Note/Bond 4.38% 05/15/2034, and United States Treasury Note/Bond 4.25% 08/15/2035. Launched in 2009, the Vanguard fund has a trailing-12-month dividend of $2.27 per share.

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What does this mean for investors?

These bond ETFs are very similar. They have even delivered nearly identical returns over the past five years.

However, many bond investors may choose the Vanguard Intermediate-Term Treasury ETF (VGIT) for three reasons. VGIT has a lower expense ratio while offering a higher dividend yield and greater liquidity. This will appeal to investors seeking maximum long-term returns, regardless of near-term interest-rate sensitivity or volatility.

The main advantage of the iShares ETF is its slightly shorter bond duration of three to seven years, whereas VGIT holds some bonds with durations up to 10 years. This means IEI might be less sensitive to interest rate changes.

For investors who want to minimize volatility, IEI is the better choice. But if interest rate sensitivity doesn’t bother you, VGIT’s higher yield and lower expense ratio may allow it to deliver better returns over the long term.

John Ballard 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.