iShares and Vanguard exchange-traded funds (ETF’s) are some of the most popular products in the market. People often have difficulty choosing between them, and for good reason. Both companies offer excellent products that are often very similar.
We’re going to go over some of the differences to help you decide which company you should go with.
iShares is a series of ETF’s under global investment firm Blackrock. iShares has over 350 ETF’s covering almost every sector you can imagine. Index funds? Check. Bond funds? Check. Commodities? Check. iShares also has very specific ETF’s that have a narrow target segment for those investors that like to build up their own custom portfolio piece by piece.
Vanguard also offers a wide range of ETF’s, but their portfolio doesn’t have quite as many options as iShares. Vanguard has close to 100 ETF’s versus the 350+ that iShares has. For the everyday investor, the funds that Vanguard offers are more than enough, and probably less confusing than the massive amount of options that iShares has. Vanguard is more known for their broad market and “all-in-one” ETF’s when compared with iShares.
iShares vs Vanguard ETF’s
So, which company should you buy your ETF’s from?
In general, we think you should go with iShares. However, do take the time to check out the equivalent offering from Vanguard as there are certain ETF’s where Vanguard is better than the iShares equivalent.
Here’s what you should be looking for when comparing specific ETF’s:
Fees. This will be listed as a management fee or MER, and will be displayed as a percentage value. For example, the fee for owning the ETF might be something like 0.10% of your invested money. Lower is better!
Asset Allocation. Even ETF’s targeting the same segment will have different asset allocations. For example, the iShares XGRO and Vanguard VGRO are both growth ETF’s that are heavily North American focused. However, XGRO has a higher allocation to US equities than VGRO. Is that good? You’ll have to make that decision yourself based on what else you have in your portfolio.
Performance. Make sure your ETF does what it says it should do. For example, if you’re looking at an ETF that’s supposed to track the S&P 500 index, then take a look to see how well it actually tracks. Based on how the ETF’s are constructed, even index ETF’s can have slight performance differences. It also doesn’t hurt to make sure that the ETF has consistently produced good returns.
Check out the two images below for the comparison between the S&P 500 index and the Vanguard ETF that tracks the index. You can see that the ETF does an excellent at mimicking the index.
Liquidity. This is a fancy way of saying you can buy and sell your ETF whenever you want. Remember that unlike mutual funds, ETF’s are bought and sold from other people or institutions. This means that when you want to buy or sell your ETF there has to be someone there to sell or buy the shares. If an ETF is “liquid”, it means that there are lots of people looking to buy and sell that ETF so it’s very easy to trade it.
In the image below, you can see the trade volume of two ETF’s. One ETF has a 71,400 trade volume, and the other has a 17.3 million trade volume. The one with the 17.3 million trade volume is considered the more liquid ETF.
Auto-buy. Some people like to set their investment accounts such that it automatically buys certain ETF’s at regular intervals – for example after every paycheck. Regularly buying an investment rather than dumping all of your money in at once is called “dollar-cost averaging”, and allows you to lower your chances of buying in at the peak price since you’re spreading out the purchases over time.
Make sure that your investment account can do auto-buy for both iShares and Vanguard. There are still some brokers out there who will only do auto-buy for one or the other.
iShares and Vanguard are both leaders in the ETF industry, and you can’t go wrong buying from either one. For the ETF’s you’re considering, you’ll have to do a bit of research and compare them across the dimensions we listed above.