Which Intermediate Corporate Bond ETF Is the Better Buy: Vanguard VCIT or iShares IGIB?
Explore how portfolio construction and cost differences set these two popular bond ETFs apart for income-focused investors.
By Brendan Coffey
While Vanguard Intermediate-Term Corporate Bond ETF (VCIT +0.39%) and iShares 5-10 Year Investment Grade Corporate Bond ETF (IGIB +0.40%) share identical yields and similar maturity profiles, the iShares fund offers significantly broader diversification across corporate issuers.
Investors seeking steady income from high-quality corporate debt often land on these two giants. Both target bonds with five- to 10-year maturities, providing a middle ground on the yield curve. While their performance and costs are nearly indistinguishable, their internal construction reveals different approaches to portfolio depth and diversification within the investment-grade bond space.
Snapshot (cost & size)
The Vanguard fund is slightly more affordable with a 0.03% expense ratio. However, both ETFs currently offer a 4.75% dividend yield, making the marginal cost difference the primary differentiator for long-term income seekers.
Performance & risk comparison
What's inside
The iShares 5-10 Year Investment Grade Corporate Bond ETF — IGIB — mirrors high-quality, U.S. dollar-denominated corporate debt with intermediate maturities. Its portfolio is exceptionally broad, containing 2,938 holdings, which ensures that no single corporate issuer significantly impacts overall performance; its largest positions include a variety of investment-grade issues with no single holding exceeding 0.45% of total assets. Launched in 2007, the fund paid $2.55 per share over the trailing 12 months, providing a highly diversified entry point into the corporate bond market.
The Vanguard Intermediate-Term Corporate Bond ETF — VCIT — similarly focuses on investment-grade corporate debt but maintains a more concentrated pool of 2283 holdings. Its largest positions are also well-dispersed, with no single issue representing more than 0.31% of the fund's assets under management (AUM). Launched in 2009, this fund has a trailing-12-month dividend of $3.95 per share. Both funds provide exposure to the same maturity range.
Which fund is the better buy?
The two funds, iShares’ IGIB and Vanguard’s VCIT, both seek to represent the intermediate (5- to 10-year) corporate bond market. That’s actually a much more difficult task than an equity fund trying to represent a stock market or index. The corporate bond market is much larger, more opaque, and more illiquid than the stock market.
Still, the two funds show a remarkably similar profile. The credit quality distribution among the funds is similar, with the BBB-rated issuers constituting 48% of the Vanguard fund and 47% of the iShares fund. Presumably, BBB-rated issuers should be better-yielding, but differences in prices and yields at issuance mean some may not yield as well as others. The iShares ETF has a small exposure to BB-rated bonds, which are riskier. The Vanguard fund doesn’t have any BB position.
Given how similar the funds are, the decision comes down to performance.IGIB has VCIT beat in every time frame. The iShares intermediate bond ETF has better 3-year, 5-year, and 10-year performance, posting a 10-year annualized total return of 3.14% to VCIT’s 3.1%.
The results are close enough that easier access to one fund or the other, say, through a company retirement plan offering, is a perfectly good reason to buy VCIT over IGIB and not worry about losing out on corporate bond ETF performance.
For more guidance on ETF investing, check out the full guide at this link.