Key Takeaways:
Income investors choosing between iShares and Vanguard intermediate-term corporate bond ETFs face a rare problem: the two funds delivered nearly identical 4.7% dividend yields and 5.8% to 5.9% one-year returns, leaving portfolio diversification and a single basis point in fees as the primary differentiators.
"The decision comes down to whether an investor prioritizes the liquidity of a $68 billion fund or the deeper diversification of a 3,000-bond portfolio," said Hannah Park, a former credit analyst at Moody's who covers asset management. "Both are excellent vehicles for the intermediate corporate bond allocation, but the trade-offs are real."
The Vanguard Intermediate-Term Corporate Bond ETF (NASDAQ:VCIT) holds $68.1 billion in assets across 2,235 bonds, while the iShares 5-10 Year Investment Grade Corporate Bond ETF (NASDAQ:IGIB) manages $18 billion spread across roughly 3,000 individual holdings. VCIT charges a 0.03% expense ratio against IGIB's 0.04%, a difference that amounts to $1 per year on every $10,000 invested. Both funds target U.S. dollar-denominated investment-grade corporate debt with maturities between five and 10 years.
Over five years, a $1,000 investment in IGIB grew to $1,069 on a total return basis, compared with $1,061 for VCIT — a gap of less than 1%. Both funds recorded identical maximum drawdowns of 20.6% during the 2020 pandemic selloff and the 2022 rate-hiking cycle, reflecting their shared exposure to intermediate-duration credit risk. Their betas of 0.33 (VCIT) and 0.34 (IGIB) indicate roughly one-third the volatility of the S&P 500.
Why diversification scale matters
IGIB's larger bond count — 3,000 issues versus VCIT's 2,235 — means no single position exceeds 0.25% of its portfolio, compared with a 0.37% maximum for VCIT. In a market where single-issuer defaults remain rare for investment-grade debt, this difference is marginal for most portfolios. However, during periods of sector-specific stress — such as a selloff in energy or financial corporate bonds — the more granular portfolio can absorb idiosyncratic shocks more smoothly.
VCIT's $68.1 billion asset base offers a practical advantage: tighter bid-ask spreads and greater capacity for institutional-size trades. For individual investors buying or selling in small lots, the liquidity difference is negligible. For financial advisors managing multi-million-dollar fixed-income sleeves, VCIT's scale can reduce transaction costs meaningfully.
The short-term alternative
For investors seeking less duration risk, both issuers offer short-term corporate bond ETFs with similar dynamics. The Vanguard Short-Term Corporate Bond ETF (NASDAQ:VCSH) holds $49.5 billion and yields 4.4%, while the iShares 1-5 Year Investment Grade Corporate Bond ETF (NASDAQ:IGSB) manages $22 billion with a 4.6% yield. Both posted five-year maximum drawdowns of 9.5%, roughly half the volatility of their intermediate-term counterparts.
The intermediate-term funds' 4.7% yield sits well above the S&P 500's average dividend yield of around 1%, and both pay monthly distributions — a feature that appeals to retirees and income-focused investors who use payouts to cover recurring expenses. The trade-off is duration risk: with maturities concentrated in the five-to-10-year range, a 100-basis-point rise in interest rates would reduce net asset values by roughly five to seven percent, based on the funds' effective durations.
For investors building a core fixed-income allocation, the choice between IGIB and VCIT is unlikely to determine portfolio outcomes. Both funds track similar Bloomberg Barclays intermediate corporate bond indices, and their performance histories show less than 0.1% annualized divergence. The more consequential decision is the allocation between short-term and intermediate-term corporate debt — a call that depends on an investor's view of the rate path and their tolerance for interim price volatility.
This article is for informational purposes only and does not constitute investment advice.
