VCSH vs IGSB: Which Short-Term Bond ETF Fund Delivers Better Returns for Your Portfolio?

The Core Differences Between These Two Corporate Bond ETFs

When comparing Vanguard Short-Term Corporate Bond ETF (VCSH) and iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB), most investors focus on the expense ratio first. The numbers tell an interesting story: VCSH charges 0.03% annually while IGSB comes in at 0.04%—a marginal difference that matters more in theory than in practice. However, the real distinction lies in how these two bond fund vehicles construct their portfolios and the income they generate.

Over the trailing 12 months through November 2025, both delivered identical 1-year returns of 1.8%, yet IGSB edges ahead on current income. The dividend yield sits at 4.4% for IGSB versus 4.3% for VCSH, giving income-focused investors a tangible advantage with the iShares offering. For those prioritizing yield in today’s rate environment, this modest differential accumulates meaningfully over years.

Performance Metrics: Where Risk and Reward Align

The five-year risk profile reveals why both funds appeal to conservative portfolios. Maximum drawdowns were virtually identical—VCSH experienced a (9.47%) decline while IGSB posted (9.46%)—suggesting comparable credit stability and interest rate sensitivity. A theoretical $1,000 invested five years ago in either ETF would have grown to roughly $963, reflecting the challenging environment for short-duration corporate debt during this period.

However, beta measurements expose a subtle difference in equity market correlation. IGSB’s beta of 0.13 suggests lower sensitivity to broad stock market swings compared to VCSH’s 0.44 beta. While both remain relatively insulated from equity volatility—the nature of bond fund investing—IGSB’s lower beta appeals to investors seeking maximum isolation from stock market gyrations.

Inside the Holdings: Scale Versus Sampling Strategy

The portfolio construction philosophy separates these two ETFs fundamentally. IGSB maintains an expansive roster exceeding 4,000 individual corporate bonds, creating substantial diversification across issuers, sectors, and credit qualities. This scale-based approach distributes credit risk broadly; any single issuer default or downgrade produces minimal portfolio impact. The fund tracks the complete investment-grade universe for bonds maturing between one and five years.

VCSH employs a sampling methodology, reporting fewer individual line items while still capturing the essential character of the short-term corporate bond market. This approach yields a cleaner maturity ladder and produces more predictable interest rate sensitivity. Though VCSH holds fewer individual securities than IGSB’s 4,000-plus bonds, it maintains thousands of holdings, preserving meaningful diversification within a leaner structural framework.

Assets Under Management and Fund Stability

The absolute size difference warrants attention. VCSH manages $46.8 billion in assets, roughly 2.15 times IGSB’s $21.8 billion AUM. Larger funds typically offer tighter bid-ask spreads for active traders and represent more mature investment vehicles. VCSH’s substantial asset base also provides operational leverage that partially explains its marginally lower expense ratio, despite both being competitively priced for institutional-grade bond funds.

Which ETF Serves Your Investment Goals?

IGSB excels for investors who prize comprehensive diversification and current income generation. The 4,000-plus holding strategy smooths returns across economic cycles and credit environments. Its 4.4% yield makes it particularly attractive for retirees or income-focused portfolios seeking steady distributions from short-duration corporate debt.

VCSH appeals to cost-conscious investors who appreciate structural simplicity and predictable rate behavior. The sampling approach delivers lower overhead while maintaining broad market exposure. Its 0.03% expense ratio compounds into meaningful savings over decades of investing, especially within tax-advantaged retirement accounts where basis points translate directly to retirement income.

The Practical Reality for Bond Fund Investors

Both VCSH and IGSB remain exceptionally well-suited for long-term investors building stable core income positions. Neither exhibits the volatility or credit risk that characterizes lower-rated bond categories. The choice ultimately depends on whether you prioritize maximum yield and diversification (IGSB) or cost efficiency and rate predictability (VCSH). For most portfolios, either serves the defensive short-term fixed income allocation admirably, making this less about finding the “right” answer and more about aligning your selection with personal preferences regarding portfolio construction philosophy.