Vanguard’s VGIT vs. iShares’ IEI: Cost vs. Stability in Treasury ETFs

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The Vanguard Intermediate-Term Treasury ETF (VGIT +0.14%) distinguishes itself through its exceptionally low costs and slightly higher yield, while the iShares 3-7 Year Treasury Bond ETF (IEI +0.14%) offers marginally stronger recent performance and a narrower historical drawdown. Both funds aim to expose investors to intermediate U.S. Treasury bonds, but their approaches differ subtly: VGIT targets maturities from three to ten years, whereas IEI focuses on the three- to seven-year range. Here is how they compare on cost, returns, risk, and composition.

Snapshot (cost & size)

Metric VGIT IEI
Issuer Vanguard IShares
Expense ratio 0.03% 0.15%
1-yr return (as of Dec. 11, 2025) 2.2% 2.4%
Dividend yield 3.8% 3.4%
Beta 0.82 0.71
AUM $42.9 billion $17.4 billion

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

VGIT’s expense ratio of 0.03% is significantly lower than IEI’s 0.15%. This makes it more attractive to cost-conscious investors seeking income, though IEI’s narrower focus comes at a premium. VGIT’s modestly higher yield further reinforces its appeal for those prioritizing income over niche exposure.

Performance & risk comparison

Metric VGIT IEI
Max drawdown (5 y) -15.43% -14.22%
Growth of $1,000 over 5 years $858 $898

What’s inside

IEI holds U.S. Treasury bonds with maturities between three and seven years, comprising 83 holdings and nearly two decades of operation. Its top positions include Treasury Note 4.07%, Treasury Note 3.58%, and Treasury Note 2.92%. The fund lacks notable structural complexities.

VGIT, by contrast, spans a broader intermediate-term range (three to ten years), holding 105 U.S. Treasury issues. Its top holdings are United States Treasury Note/Bond 2.03%, United States Treasury Note/Bond 1.98%, and United States Treasury Note/Bond 1.97%.

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What this means for investors

Investors seeking stability and reliable income may find Treasury ETFs like VGIT and IEI compelling. Both invest in U.S. government bonds with overlapping maturity ranges, making them suitable for conservative portfolios aiming to reduce volatility or preserve capital during uncertainty.

The critical distinction lies in costs and yield. VGIT’s expense ratio of 0.04% is far lower than IEI’s 0.15%, a disparity that accumulates meaningfully over time for long-term holders. VGIT also offers a slightly higher dividend yield, currently 3.8% versus IEI’s 3.4%. For retirees or income-focused savers, these differences are material.

IEI, however, demonstrates slightly better recent performance and a shallower maximum drawdown during the 2022 bond market turmoil, suggesting superior resilience during periods of stress. This implies a trade-off: lower costs versus smoother performance.

Cost-conscious investors should favor VGIT’s minimal fees, while those willing to accept a modest premium for potential stability may prefer IEI. Both, however, provide the safety and predictability that Treasury investors value most.

Glossary

ETF (Exchange-Traded Fund): An investment fund traded on stock exchanges, holding a basket of assets like stocks or bonds.
Expense ratio: The annual fee, as a percentage of assets, that a fund charges its shareholders.
Dividend yield: Annual dividends paid by a fund, expressed as a percentage of its current price.
Beta: A measure of an investment’s volatility compared to the overall market, often the S&P 500.
AUM (Assets Under Management): The total market value of assets that a fund manages on behalf of investors.
Max drawdown: The largest percentage drop from a fund’s peak value to its lowest point over a specific period.
Intermediate-term Treasury bonds: U.S. government bonds with maturities typically between three and ten years.
Holdings: The individual securities or assets owned within a fund or portfolio.
Structural overlay: An additional investment strategy or feature layered on top of a fund’s main holdings.

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2025-12-16 22:07