Using Vanguard Funds to Compare ETFs to Index Mutual Funds

As ETFs become increasingly popular, it is valuable to compare performance between ETFs and Mutual Funds.

There are many types of Mutual Funds but for this analysis, we are going to split them into index and managed funds. Index funds have lower expenses and with research stating that indexed funds beat most managers in the long run, they make a lot of sense. However, if you have well managed mutual funds, you can beat the market and so it's important to select your mutual fund wisely.

ETFs are have very low management fees and are predominantly index based. However, they have a shorter history and there is potential for losses to occur during trades if there is trading friction and the price fluctuated durign the day -- soemthign that doesn't happen with Mutual Funds.

In this study, we compare Vanguard's all index investor class mutual funds with their commission free ETFs. Note that this analysis assumes that there is no cost for performing the actual trades.


The  Vanguard All Index Funds Investor Class consists of 29 funds. These funds enable participants to gain exposure to 5 major assets: US Equity, Foreign Equity, Emerging Market Equity, REITs, Fixed Income.

The Vanguard ETF plan consists of 43 funds. These funds enable participants to gain exposure to 5 major assets: US Equity, Foreign Equity, REITs, Emerging Market Equity, Fixed Income.

 

Asset Class Mutual Fund
ETF Plan
Balanced Fund 1 0
REITs 1 1
Fixed Income 4 10
Commodity 0 0
Foreign Equity 6 5
Emerging Market Equity 2 2
US Equity 15 14
Sector/Other
0
11
Total 29 43

 

As of Feb 17, 2011, this plan investment choice is rated as average based on MyPlanIQ Plan Rating methodology that was designed to measure how effective a plan's available investment funds are. It has the following detailed ratings:

Rating Property
Mutual Fund
ETF Plan
Diversification 82% 88%
Fund Quality
35% 32%
Protfolio Building 68% 48%
Total Rating
62% 55%


We note that the two funds run neck and neck in the ratings except in portfolio building. This is explained more pnthe Plan Rating methodology page.

We now compare historical performance of the two plans

Performance chart (as of Feb 18, 2011)

Performance table (as of Feb 18, 2011)

Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Vanguard ETFs Tactical Asset Allocation Moderate 15% 115% 8% 57% 10% 66%
Vanguard ETFs Strategic Asset Allocation Moderate 21% 162% 8% 35% 8% 35%
Vanguard All Index Funds Class Tactical Asset Allocation Moderate 16% 124% 11% 98% 12% 96%
Vanguard All Index Funds Class Strategic Asset Allocation Moderate 19% 167% 6% 29% 7% 34%


We note:

  • The results are similar. The SAA strategy of the ETF plan beats the index plan and the TAA of the Index plan beats the ETF plan
  • The further we travel back in time, the fewer choices we have in the ETF plan because some of the ETFs are relatively new
  • We would expect the ETF plan to continue to improve with time as trading volumes increase and more choices become available


Our conclusion is that if you are looking for index funds, ETFs are the wave of the future and will allow you to have more choices and build higher performance portfolios. For example, the TD Ameritrade commission free ETF plan has good returns

Disclosure:

MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

 

Symbols:  VBISX, VBIIX, VBMFX, VBLTX, VBINX, VFINX, VDAIX, VFTSX, VIGRX, VHDYX, VLACX, VTSMX, VIVAX, VEXMX, VMGIX, VIMSX, VMVIX, VISGX, NAESX, VISVX, VGSIX, VDMIX, VEIEX, VEURX, VFWIX, VPACX, VGTSX, VTWSX, VCR , VDC , VIG , VWO , VDE , VEA , VGK , EDV , VFH , VEU , VSS , VUG , VHT , VYM , VIS , VGT , BIV , VCIT , BLV , VCLT , VGLT , VAW , MGC , MGK , MGV , VO , VOT , VOE , VMBS , VPL , VNQ , BSV , VGSH , VB , VBK , VBR , VOX , BND , VTI , VT , VPU , VTV

 

Loading...
Loading...
BIV Logo
BIVVanguard Intermediate-Term Bond ETF
--%

Stock Score Locked: Want to See it?

Benzinga Rankings give you vital metrics on any stock – anytime.

Reveal Full Score
Edge Rankings
Momentum
60.37
Price Trend
Short
Medium
Long
BLV Logo
BLVVanguard Long-Term Bond ETF
$68.26-%
BND Logo
BNDVanguard Total Bond Market ETF
$72.66-0.06%
BSV Logo
BSVVanguard Short-Term Bond ETF
$78.340.24%
EDV Logo
EDVVanguard Extended Duration Treasury ETF
$66.79-%
MGC Logo
MGCVanguard Mega Cap ETF
--%
MGK Logo
MGKVanguard Mega Cap Growth ETF
$325.270.11%
MGV Logo
MGVVanguard Mega Cap Value ETF
--%
VAW Logo
VAWVanguard Materials ETF
$188.03-%
VB Logo
VBVanguard Small-Cap ETF
$221.71-0.07%
VBK Logo
VBKVanguard Small-Cap Growth ETF
--%
VBR Logo
VBRVanguard Small-Cap Value ETF
--%
VCIT Logo
VCITVanguard Intermediate-Term Corporate Bond ETF
$81.000.06%
VCLT Logo
VCLTVanguard Long-Term Corporate Bond ETF
$73.55-%
VCR Logo
VCRVanguard Consumer Discretion ETF
--%
VDC Logo
VDCVanguard Consumer Staples ETF
--%
VDE Logo
VDEVanguard Energy ETF
--%
VEA Logo
VEAVanguard FTSE Developed Markets ETF
--%
VEU Logo
VEUVanguard FTSE All World Ex US ETF
--%
VFH Logo
VFHVanguard Financials ETF
$118.00-1.05%
VGK Logo
VGKVanguard FTSEEuropean ETF
$74.290.15%
VGLT Logo
VGLTVanguard Long-Term Treasury ETF
$55.71-0.05%
VGSH Logo
VGSHVanguard Short-Term Treasury ETF
$58.900.61%
VGT Logo
VGTVanguard Information Tech ETF
$566.29-0.22%
VHT Logo
VHTVanguard Health Care ETF
--%
VIG Logo
VIGVanguard Div Appreciation ETF
$192.00-0.53%
VIS Logo
VISVanguard Industrials ETF
--%
VMBS Logo
VMBSVanguard Mortgage-Backed Securities ETF
$45.73-%
VNQ Logo
VNQVanguard Real Estate ETF
--%
VO Logo
VOVanguard Mid-Cap ETF
--%
VOE Logo
VOEVanguard Mid-Cap Value ETF
--%
VOT Logo
VOTVanguard Mid-Cap Growth ETF
$253.00-0.35%
VOX Logo
VOXVanguard Communication Services ETF
$151.25-%
VPL Logo
VPLVanguard FTSE Pacific ETF
$76.39-%
VPU Logo
VPUVanguard Utilities ETF
--%
VSS Logo
VSSVanguard FTSE All-Wld ex-US SmCp Idx ETF
--%
VT Logo
VTVanguard Total World Stock Index ETF
$119.01-0.04%
VTI Logo
VTIVanguard Total Stock Market ETF
--%
VTV Logo
VTVVanguard Value ETF
--%
VUG Logo
VUGVanguard Growth ETF
$389.980.17%
VWO Logo
VWOVanguard FTSE Emerging Markets ETF
$46.450.02%
VYM Logo
VYMVanguard High Dividend Yield ETF
$125.33-0.45%
Market News and Data brought to you by Benzinga APIs

Posted In:
Comments
Loading...