iShares or Vanguard: Which Intermediate Corporate Bond ETF Is the Better Buy for Income Investors?

The iShares 5-10 Year Investment Grade Corporate Bond ETF(NASDAQ:IGIB) and Vanguard Intermediate-Term Corporate Bond ETF (NASDAQ:VCIT) offer highly similar exposure to investment-grade corporate bonds with five- to 10-year maturities.

These funds target the "belly" of the yield curve, providing higher interest payments than short-term bonds while avoiding the extreme price sensitivity often found in long-term debt. Investors may use these ETFs to anchor the core fixed-income portion of a diversified portfolio with high-quality corporate credit from industrial, utility, and financial companies.

Snapshot (cost & size)

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

Vanguard's fund is slightly more affordable with a 0.03% expense ratio compared to 0.04% for the iShares fund. Both funds currently offer competitive payouts, making cost a primary differentiator for long-term investors.

Performance & risk comparison

What's inside

The iShares 5-10 Year Investment Grade Corporate Bond ETF is a fixed-income fund with no equity sector breakdown. It seeks to mirror high-quality corporate debt securities denominated in U.S. dollars. Its largest positions include diversified investment-grade bonds, though the fund is highly diversified -- no single position exceeds 0.23% of the portfolio. The fund holds 2,997 separate securities and was launched in 2007. iShares 5-10 Year Investment Grade Corporate Bond ETF has paid $2.57 per share over the trailing 12 months, which on its recent ~$52.16 share price works out to a 4.9% yield.

The Vanguard Intermediate-Term Corporate Bond ETF is also a fixed-income fund with no equity sector breakdown. It focuses on dollar-denominated investment-grade bonds with maturities between five and 10 years. Its largest positions include a broad range of corporate issues, though the fund is highly diversified -- no single position exceeds 0.31% of the portfolio. The fund holds 2,271 securities and was launched in 2009. Vanguard Intermediate-Term Corporate Bond ETF has paid $3.96 per share over the trailing 12 months, which on its recent ~$81.07 share price works out to a 4.9% yield.

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Which looks like the better buy

Intermediate-term corporate bonds occupy a useful middle ground in a fixed income portfolio, generating more income than short-term bonds while avoiding the extreme rate sensitivity of long-duration debt. Both IGIB and VCIT target that sweet spot, and they do it so similarly that the choice between them is unlikely to have a noticeable impact on long-term results.

Both funds offer virtually identical yields and have experienced nearly identical maximum drawdowns over the past five years. The fee difference between them amounts to one basis point, roughly one dollar annually on a $10,000 investment. VCIT manages roughly four times the assets of IGIB, giving it deeper liquidity, while IGIB holds a somewhat broader range of issuers and has a small allocation to BB-rated bonds that VCIT avoids entirely.

IGIB has outperformed VCIT across every measured time frame, though the differences are close enough that easier access through a retirement plan is a perfectly valid reason to choose VCIT. For most investors, the more important decision is owning intermediate corporate bond exposure at all, and both funds deliver it well at essentially no cost.

Sara Appino 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.