BSV Offers Broader Bond Exposure Than VGSH

The Vanguard Short-Term Bond ETF (NYSEMKT:BSV) and Vanguard Short-Term Treasury ETF (NASDAQ:VGSH) both offer ultra-low costs and high liquidity. Still, BSV stands out for its broader bond exposure and larger assets under management (AUM), while VGSH focuses solely on U.S. Treasuries.

Both funds aim to deliver steady income with modest interest rate risk, but their approaches diverge. VGSH invests exclusively in short-term U.S. Treasury bonds, while BSV holds a mix of government, corporate, and international investment-grade bonds. This analysis compares cost, performance, risk, and holdings to help investors decide which fund better aligns with their income goals.

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-year return represents total return over the trailing 12 months.

Both funds are equally affordable with a 0.03% expense ratio. VGSH pays a slightly higher dividend yield, while BSV’s broader mandate is reflected in its much larger assets under management (AUM).

BSV tracks a broad bond index, holding 3,115 positions as of its 18.8-year history. Its portfolio covers U.S. government, investment-grade corporate, and international dollar-denominated bonds, offering exposure beyond Treasuries.

Top holdings include U.S. Treasury Note/Bond 3.63% 12/31/2030, U.S. Treasury Note/Bond 4.00% 02/28/2030, and U.S. Treasury Note/Bond 3.50% 11/30/2030, indicating a tilt toward high-quality, government debt.

Most of its portfolio, or 69.8%, is invested in government bonds, with the balance held primarily in corporate bonds. Less than 5% is in foreign debt issues.

In contrast, VGSH remains focused exclusively on U.S. Treasuries, with 92 holdings and a one to three-year maturity range. Its top positions include U.S. Treasury Note/Bond 1.50% 01/31/2027, U.S. Treasury Note/Bond 4.38% 07/15/2027, and U.S. Treasury Note/Bond 3.88% 07/31/2027. These top holdings reflect its narrow, government-only mandate and a portfolio designed for maximum credit safety.

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Both Vanguard funds are solid for an investor looking for safe options to boost short-term income. But VGSH’s 5-year return stands out. It slightly edges out BSV, despite its exclusive focus on holding nothing but U.S. Treasuries.

Moreover, VGSH’s slightly higher trailing dividend yield may appeal to investors. Although this could flip eventually, given BSV’s focus on corporate debt, which generally offers higher yields than Treasuries. BSV’s yield has been steadily trending higher over the past year, while VGSH’s is falling.

Investors seeking the safest, most stable returns across market cycles will likely opt for VGSH, given its focus on Treasury bonds. The steeper drawdowns of BSV reflect the downside of corporate bonds during macroeconomic challenges, which is something to consider if you’re looking to hold it for the long term.

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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Bond Index Funds – Vanguard Short-Term Bond ETF. The Motley Fool has a disclosure policy.

BSV Offers Broader Bond Exposure Than VGSH was originally published by The Motley Fool