Vanguard vs. iShares: Battle of Intermediate Corporate Bond ETFs

Includes: CIU, VCIT
by: MyPlanIQ

Bonds are a central part of any investment portfolio. Of late, bonds have been under pressure and finding the right mix of fixed income choices is increasingly important. Bonds are classified into various categories of which intermediate corporate bonds are one.

In this article we are going to briefly overview intermediate corporate bond ETFs and highlight two ETFs from this subcategory that could strengthen your portfolio.

  • Corporate bonds are a debt security issued by a company to raise money to expand their business.
  • Bonds can be set to mature over a wide range of time, from a few months to many years.
  • Intermediate-term bonds (3-10 years) are generally considered a good compromise between yield and risk.
  • Normally the credit ratings of these bonds lie between AAA to BBB
  • Intermediate corporate bond yields are an attractive option compared to government yields while the fed keeps interest rates low and pumps liquidity in to the system.

MyPlanIQ monitors the returns of ETFs in over 24 different sub classes. The table below provides a list of intermediate corporate bond ETFs:

Description Symbol 1 Yr 3 Yr 5 Yr Avg. Volume(k) 1 Yr Sharpe
Vanguard Interm-Tm Corp Bd Idx VCIT 7.52% NA NA 52 163.93%
SPDR Barclays Cap Interm Term ITR 5.68% NA NA 51 161.33%
iShares Barclays Credit Bond CFT 5.5% 4.95% NA 45 132.7%
iShares Barclays Intermediate CIU 4.79% 4.78% NA 195 131.71%
PIMCO Investment Grade Corp Bd CORP NA NA NA 9 NA

VCIT is the best performer in terms of one year returns, whereas CIU has longevity and volume.

Distribution of credit quality (% of fund) as of 02/28/2011


















The average credit rating of both of these intermediate corporate bonds ranges from AAA to BAA. VCIT only started trading on November 19, 2009. The average yield to maturity is 5.2% and the average coupon rate is 6.4%. Average maturity is 7.8 years. All holdings mature within five to ten years. VCIT offers investors the opportunity to conveniently, safely, and inexpensively profit from corporate bond yields that are higher than those available from government bond issuers. The expense ratio is very low at 0.15%. This is 84% lower than the average expense ratio of funds with similar holdings.

CIU's average yield to maturity is 6.22% and the average coupon rate is 5.06%. Average maturity is 4.95 years. All holdings mature within five to ten years except for 1% which are greater than 10 years. The expense ratio is 0.20%.

Ultimately investing in bonds protects from the volatility of the equity markets but exposes investors to other risks such as credit risk and interest rate inflation. It might be worth considering both VCIT and CIU or CFT to provide returns and longevity in your portfolio.

Disclosure: The author has no positions in any securities mentioned herein, and no plans to initiate any positions within the next 72 hours.