Investors choosing between Vanguard Short-Term Treasury ETF (NASDAQ:VGSH) and iShares 1-5 Year Investment Grade Corporate Bond ETF (NASDAQ:IGSB) weigh the safety of Treasuries against the higher yields of corporate credit.
Both ETFs provide exposure to high-quality, short-duration debt, making them common tools for dampening portfolio volatility. While VGSH limits itself to U.S. government securities, IGSB reaches for higher yields by holding debt from investment-grade corporations, leading to different risk-return profiles in fluctuating interest rate environments.
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 marginally more affordable with a 0.03% expense ratio compared to 0.04% for IGSB. However, the iShares fund offers a higher payout, providing a 0.70 percentage point yield advantage for those seeking more income.
Performance & risk comparison
What’s inside
Vanguard Short-Term Treasury ETF (NASDAQ:VGSH) is a fixed income fund holding 93 positions primarily in U.S. Treasury securities with maturities between one and three years. The fund was launched in 2009. Vanguard Short-Term Treasury ETF has paid $2.25 per share over the trailing 12 months, which on its recent ~$58.20 share price works out to a 3.90% yield.
iShares 1-5 Year Investment Grade Corporate Bond ETF (NASDAQ:IGSB) holds 4,601 positions in high-quality corporate debt securities with remaining maturities ranging from one to five years. The fund is highly diversified, and no single position exceeds 0.31% of the portfolio. It was launched in 2007. iShares 1-5 Year Investment Grade Corporate Bond ETF has paid $2.39 per share over the trailing 12 months, which on its recent ~$52.41 share price works out to a 4.60% yield.
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What this means for investors
Short-term bond funds are not designed to generate big returns. They exist to produce steady income, preserve capital, and stabilize a portfolio when stocks get turbulent. The question is how much risk you are willing to accept to get that income.
VGSH holds only 93 U.S. Treasury bonds, making it one of the most straightforward fixed-income funds available. Its all-government portfolio avoids credit risk entirely and has delivered smaller drawdowns than IGSB over every measured period. There is also a tax angle worth noting: Treasury income is exempt from state and local taxes, which partially closes the yield gap for investors in high-tax states.
IGSB holds more than 4,500 investment-grade corporate bonds, delivering a higher yield than VGSH in exchange for modest credit risk. Corporate bond credit spreads are currently near historic lows, meaning investors are receiving relatively little extra compensation for that risk right now.
VGSH costs slightly less and carries lower risk across every measured period, making it the stronger choice for investors who want their bond allocation to act as a true safe haven. IGSB is the better fit for those prioritizing income from a broadly diversified pool of high-quality corporate debt.
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Vanguard’s VGSH or iShares’ IGSB: Which Short-Term Bond ETF Belongs in Your Portfolio? was originally published by The Motley Fool
