In the realm of investment-grade corporate bonds with maturities ranging from five to ten years, investors often consider the iShares 5-10 Year Investment Grade Corporate Bond ETF (IGIB) and the Vanguard Intermediate-Term Corporate Bond ETF (VCIT) as prominent vehicles for exposure. Despite targeting a similar segment of the bond market, these funds present distinct differences in portfolio composition, cost structure, recent returns, and risk characteristics, warranting a comprehensive comparison for those evaluating intermediate-term fixed income strategies.
Fund Overview and Cost Considerations
Both IGIB and VCIT concentrate on U.S. corporate bonds rated investment grade with intermediate-term maturities. However, their scale and expense ratios diverge moderately. As of late 2025, VCIT commands approximately $61.1 billion in assets under management (AUM), substantially surpassing IGIB's $17.1 billion. Expense-wise, VCIT holds a slight advantage by charging an annual fee of 0.03%, compared to IGIB's 0.04%, marginally reducing the cost burden for investors.
When evaluating yield, VCIT exhibits a marginally higher dividend yield of 4.52% against IGIB’s 4.49%. Nonetheless, IGIB has demonstrated a favorable performance in terms of total return over the preceding year, reporting 7.66% compared to VCIT’s 7.41%. This variance indicates that while VCIT offers a somewhat greater income distribution, IGIB has edged ahead in capital growth over the short term.
Portfolio Diversity and Sector Distribution
A defining distinction between the two ETFs lies in portfolio breadth. IGIB maintains a significantly larger and more diverse array of nearly 3,000 individual bonds spanning a wide array of issuers. This breadth serves to spread exposure evenly, reducing the impact of any single issuer’s credit events on the fund’s overall performance.
IGIB's top holdings include treasury-related assets like BlackRock Cash Fund Treasury Sl Agency (0.51%) and Bank of America Corp Mountain (0.21%), with a notable allocation toward cash and other short-term instruments. This positioning supports the fund’s role as a core holding for investors desiring broad exposure to intermediate-term investment-grade debt without sector concentration risks.
Conversely, VCIT adopts a more focused portfolio with approximately 343 holdings. Its sector allocation prominently favors Financial Services, comprising around 28% of the assets, followed by sizeable allocations in Cash & Others (12%) and Technology (9%). The fund’s key individual positions include technology giants Meta Platforms (approximately 0.31%), as well as financial behemoths Bank of America (0.28%) and JPMorgan Chase (0.26%).
VCIT also incorporates an Environmental, Social, and Governance (ESG) screening process, which filters its eligible issuers and may influence sector distribution and bond selection compared to a traditional investment-grade corporate bond portfolio. This screening can lead to a portfolio that deprioritizes certain sectors or issuers based on ESG criteria, inherently shaping the profile and risk-return characteristics of the fund.
Performance and Volatility Metrics
Throughout a five-year horizon, both ETFs have faced similar maximum drawdowns, with VCIT experiencing a decline of 20.56% and IGIB slightly more at 20.64%. This similarity indicates comparable risk profiles in terms of peak-to-trough loss amidst volatile market conditions.
Evaluating growth of hypothetical investments, $1,000 invested five years prior would have decreased to roughly $864 in VCIT, whereas IGIB would have slightly outperformed, arriving at $881. These differences, while modest, reaffirm IGIB's incremental advantage in total return during this period despite a slightly higher expense ratio.
Implications for Investors
Intermediate-term investment-grade corporate bonds traditionally offer a balance of reliability and moderate income, though they are sensitive to shifts in interest rates and credit market confidence. The approaches employed by IGIB and VCIT reflect contrasting philosophies in managing these factors.
IGIB’s vast diversification mitigates issuer-specific risks, potentially minimizing performance swings linked to idiosyncratic credit events. This fund tends to track market-average returns closely, favoring investors who prioritize widespread credit exposure without pronounced sector bets.
In contrast, VCIT’s more concentrated holdings, with a strong financial sector emphasis and ESG considerations, present a portfolio that may be more sensitive to sector-specific developments and policy changes related to environmental and social governance factors. This focus lends itself to heightened responsiveness to credit spread movements within its targeted sectors.
Therefore, investors must contemplate their preference for breadth versus a more curated credit profile that integrates non-financial criteria. IGIB offers a comprehensive cross-section of investment-grade corporate bonds, suitable for those seeking wide market representation. VCIT provides a tailored selection reflecting explicit credit opinions and ESG filters that could influence performance dynamics, particularly during periods of market stress or sector-specific shifts.
Terminology and Metrics Explained
- Expense ratio: The annual management fee expressed as a percentage of assets under management that investors pay for fund operation.
- Dividend yield: The income generated from the fund's holdings, typically shown as a percentage of the fund's current price.
- Total return: The combined effect of price appreciation and income distributions over a specified period.
- Beta: A measurement comparing the fund’s price volatility relative to the broader market, such as the S&P 500.
- Max drawdown: The largest peak-to-trough percentage decline in the fund’s value over a set timeframe.
- Assets Under Management (AUM): The total market value of fund holdings managed on behalf of investors.
- ESG screen: An investment filter that excludes or favors securities based on environmental, social, and governance standards.
- Sector allocation: The distribution of investments across various industries within the fund portfolio.