VCIT vs IGIB: Safety and Yield Comparison
March 28, 20267m read1Standard
Fazen Markets Research
AI-Enhanced Analysis
VCITIGIBcorporate-bond-etfcredit-riskfixed-income
VCIT and IGIB sit at the center of a renewed institutional debate over how to express duration and credit exposure in investment-grade corporate bond allocations. As of Mar 28, 2026, the headline figures show Vanguard's VCIT reporting a 30-day SEC yield of 4.90% compared with iShares' IGIB at 4.20% (source: Yahoo Finance, Mar 28, 2026). The yield spread is accompanied by a material difference in effective duration—VCIT carries roughly 5.3 years versus IGIB's ~4.1 years per fund fact sheets dated Mar 2026—creating divergent sensitivity to interest rate moves. Expense ratios are nominal but meaningful at scale: VCIT 0.05% versus IGIB 0.06% (fund prospectuses, Mar 2026). For portfolio constructors, the trade-offs are explicit: higher yield and duration with VCIT versus shorter duration and a heavier BBB tilt in IGIB's credit profile; each choice alters expected return, volatility and tail risk relative to a benchmark corporate index (sources: Vanguard, iShares, Yahoo Finance, Mar 28, 2026).
The ETF market for investment-grade corporate bonds bifurcated during the post-2022 rate normalization cycle when higher absolute yields expanded the scope for income-focused allocations. VCIT (Vanguard Intermediate-Term Corporate Bond ETF) positions itself toward longer intermediate maturities, historically tracking a Bloomberg or ICE intermediate corporate index, and as of Mar 2026 its effective duration sits near 5.3 years (Vanguard fact sheet, Mar 2026). IGIB (iShares 3-7 Year Investment Grade Corporate Bond ETF) targets shorter intermediate maturities with a reported duration near 4.1 years (iShares fact sheet, Mar 2026). That one-year-plus gap in duration is non-trivial: a 100bp parallel shift in yields implies roughly a 5.3% price move for VCIT vs ~4.1% for IGIB, all else equal.
Credit composition complements duration in determining fund behaviour. According to fund fact sheets dated Mar 2026, IGIB carries a higher proportion of BBB-rated credits—approximately 35%—while VCIT's BBB exposure is nearer 28%, with VCIT favoring A-rated issuers in the mid-40s percent range (Vanguard, iShares, Mar 2026). Institutional investors therefore face a pair of trade-offs: VCIT offers higher quoted yield (4.90% vs 4.20%) and modestly greater spread exposure, while IGIB's shorter duration and higher proportion of lower-rated but still investment-grade credits can compress interest-rate sensitivity but amplify spread volatility in stress scenarios.
Macro and benchmark context matters. The Bloomberg U.S. Corporate Index (or comparable ICE index) has produced a rolling 12-month total return that has fluctuated with Fed guidance; over the 12 months to Mar 27, 2026, broad corporate indices posted low-single-digit returns as coupons offset modest spread tightening (Bloomberg, Mar 2026). Comparing each ETF to its benchmark and to LQD (a large-cap corporate ETF) provides an additional lens on liquidity and tracking error considerations that institutions monitor closely.
Yield, duration and credit mix are the three numbers that most directly drive expected total return and risk for corporate bond ETFs. Using public figures as of Mar 28, 2026: VCIT 30-day SEC yield 4.90%, effective duration 5.3 years, expense ratio 0.05% (Vanguard factsheet, Mar 2026; Yahoo Finance, Mar 28, 2026). IGIB shows a 30-day SEC yield of 4.20%, effective duration 4.1 years, expense ratio 0.06% (iShares factsheet, Mar 2026; Yahoo Finance, Mar 28, 2026). These differences translate into identifiable performance gaps: YTD through Mar 27, 2026, VCIT returned +1.6% versus IGIB's +1.1% (source: Yahoo Finance performance table, Mar 27, 2026), reflecting higher coupon carry in VCIT but also marginally higher interest-rate sensitivity.
Credit distribution reinforces how the yield advantage is earned. In March 2026, IGIB's higher BBB weighting—around 35%—implies greater allocation to lower-investment-grade buckets within the IG universe, which typically offers incremental spread pickup relative to A-rated paper but also greater cyclical default sensitivity in severe stress (iShares factsheet, Mar 2026). VCIT's larger share of A-rated and AA exposures (combined mid-60%s) reduces expected credit-cycle volatility but compresses spread pickup; the fund instead achieves yield through modestly longer duration and broader sector mix, where insurance and financials have been prominent contributors.
Liquidity and market structure considerations merit scrutiny. ETF average daily volumes and the underlying repo and dealer market liquidity for the constituent bonds affect execution and tracking under stress. VCIT's NAV-to-market spreads historically compress during normal market conditions but can widen during episodes of heightened corporate spread volatility. IGIB, with a slightly different issuer mix and turnover profile, has shown more stable bid-ask spreads during short-duration markets but carries higher concentration in BBB issuers that dealers may offload more aggressively in dislocations.
For institutional portfolios, the choice between VCIT and IGIB is rarely about absolute safety and more about mapping exposures to liability or liquidity needs. Liability-driven investors with multi-year horizons may prefer VCIT's higher duration and slightly higher coupon to match long-dated cashflows; the 5.3-year effective duration aligns more closely with intermediate liability profiles. By contrast, cash managers or short-duration allocation managers may favour IGIB's 4.1-year duration as a tactical hedge against rate uncertainty while capturing some incremental credit spread via a higher BBB weight.
Cost matters at scale. The difference between 0.05% and 0.06% in expense ratios is negligible for small accounts but becomes material at institutional scale; on a $1bn allocation, a 1bp difference equals $100k per annum, non-trivial for performance attribution and fee budgeting. Moreover, tracking error versus benchmarks and rebalancing friction can amplify total ownership costs beyond the headline expense ratio, which is why institutions often run implementation analyses including transaction costs and securities lending revenue.
Regulatory and accounting treatment also shapes usage. Duration- and credit-targeted ETFs like VCIT and IGIB are common building blocks in multi-asset class overlays and are used in cash management, derivatives overlay hedges and laddering strategies. Their predictable maturity and credit profiles make them amenable to inclusion in fixed-income research and bespoke credit strategies; for clients with bespoke benchmarks, the trade-offs between yield pickup and interest-rate exposure are central to mandate design.
Credit risk, interest-rate risk and liquidity risk are the principal vectors to monitor. VCIT's higher duration elevates its sensitivity to parallel rate moves: a 75bp rate increase could, on a duration approximation, produce a price decline of ~3.98% for VCIT versus ~3.08% for IGIB given their respective durations (5.3y and 4.1y). Conversely, IGIB's larger BBB exposure increases expected spread volatility; in a severe credit event BBB spreads can widen materially more than higher-rated cohorts, producing outsized negative returns even with shorter duration.
Historical drawdowns show that shorter-duration, higher-credit-risk exposures can outperform in rising-rate regimes up to a point, but under credit stress the higher-BBB fund may lag. Case in point: during the tightening cycle of 2022-2023, funds with shorter durations and higher-quality biases outperformed headline intermediate funds by several hundred basis points on a relative basis. Institutions must therefore stress-test portfolios across scenarios—parallel rate shocks, curve twists, and spread-widening shocks—quantifying both VaR and expected shortfall under plausible market states.
Operational risk should not be overlooked. ETF construction—creation/redemption mechanics, authorized participants, securities lending and counterparty exposures—matters for institutional execution. Both Vanguard and iShares have deep AP networks, which mitigates risk in normal and moderately stressed markets; nonetheless, bespoke due diligence on securities lending programs and repo counterparties remains best practice for large mandates.
From a contrarian institutional vantage point, the headline yield advantage of VCIT (4.90% vs 4.20% as of Mar 28, 2026) obscures two less-obvious considerations that can favour IGIB in certain mandates. First, in a regime where policy rates remain elevated but forward curves price modest easing, shorter-duration funds can outperform on a risk-adjusted basis because they suffer less price volatility during policy retrenchment and can redeploy cash at higher forward yields. Second, IGIB's higher BBB allocation can act as a tactical lever to harvest incremental carry during credit tightening phases if managers are disciplined about trimming exposure at the first signs of widening.
We also argue that institutional investors should separate the implementation decision from the strategic allocation decision. For long-duration liability hedges, synthetic duration via swaps or Treasury futures may be more efficient than embedding duration in a corporate ETF that carries spread and credit risk. Conversely, for tactical, yield-seeking sleeves within a broader fixed-income mandate, a blended approach—combining VCIT for carry and IGIB for lower duration exposure—can achieve a targeted effective duration while capturing incremental spread in softer cycles. See our credit strategy white papers for scenario analysis and implementation matrices.
Finally, we note that scale and governance determine the winner. For small to mid-sized institutional mandates, the marginal differences in expense ratios and tracking are often decisive; for large mandates, the choice should be driven by total cost of ownership, liquidity playbooks, and stress-test outcomes rather than headline yield alone.
Q: Which ETF historically had lower tracking error to the Bloomberg U.S. Corporate Index?
A: Over rolling 12-month windows through Mar 2026, VCIT has historically shown slightly higher tracking error versus the intermediate corporate index due to broader sector exposure and longer duration, whereas IGIB's shorter maturity focus has yielded marginally lower tracking error. Institutions should validate this against their benchmark and the specific slice of the corporate market they intend to replicate.
Q: How should tax-exempt investors treat corporate ETF income?
A: Interest from taxable corporate bonds is generally taxable at the federal level; for tax-exempt investors (e.g., certain pensions or tax-exempt entities) this reduces net yield attractiveness compared with municipal alternatives. Where after-tax yield matters, compare net-of-tax returns and consider municipal equivalents or taxable-mun swap strategies as part of implementation.
Q: Are laddering and ETF sleeve strategies complementary?
A: Yes. Laddering individual bonds can control cashflow timing and reduce reinvestment risk, but ETFs like VCIT and IGIB offer operational simplicity and daily liquidity. A hybrid approach—allocating to ETFs for core, liquid exposure while laddering a portion for liability matching—often balances liquidity, yield and execution cost for institutions.
VCIT offers higher carry (4.90% vs 4.20%) and longer duration (5.3y vs 4.1y) while IGIB delivers shorter-duration exposure with a larger BBB weighting; the optimal choice depends on explicit duration targets, credit-cycle views and implementation constraints. Institutions should prioritize scenario-based stress tests, total cost of ownership and governance over headline yields when choosing between these ETFs.
Disclaimer: This article is for informational purposes only and does not constitute investment advice.
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