Better ETF: Is VCLT's Focus on Corporate Bonds the Superior Approach to TLT's U.S. Treasuries?
Key Points
VCLT charges a much lower expense ratio and offers a higher yield than TLT.
VCLT has experienced smaller drawdowns and lower volatility, but its holdings are concentrated in corporate rather than Treasury bonds.
TLT trades with higher assets under management and a greater sensitivity to interest rates.
The Vanguard Long-Term Corporate Bond ETF (NASDAQ:VCLT) stands out for its lower costs and higher yield, while iShares 20 Year Treasury Bond ETF (NASDAQ:TLT) offers greater scale and pure exposure to U.S. Treasuries.
Both funds target the long end of the bond market, but with different approaches: TLT focuses exclusively on U.S. Treasuries with maturities over 20 years, while VCLT invests in a broad basket of investment-grade corporate bonds with maturities between 10 and 25 years. This comparison highlights how these choices affect cost, performance, risk, and portfolio makeup.
Snapshot (cost & size)
| Metric | TLT | VCLT |
|---|---|---|
| Issuer | iShares | Vanguard |
| Expense ratio | 0.15% | 0.03% |
| 1-yr return (as of 2025-11-28) | -4.0% | -1.6% |
| Dividend yield | 4.4% | 5.4% |
| Beta | 2.36 | 0.67 |
| AUM | $49.7 billion | $9.1 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.
VCLT is notably more affordable, with an expense ratio that's 0.10 percentage points lower than TLT. The difference in yield is also material, as VCLT's payout is 1.1 percentage points higher, which may appeal to investors prioritizing income.
Performance & risk comparison
| Metric | TLT | VCLT |
|---|---|---|
| Max drawdown (5 y) | -45.06% | -34.31% |
| Growth of $1,000 over 5 years | $564 | $695 |
What's inside
VCLT tracks investment-grade corporate bonds, holding 257 securities across sectors like cash and others (15%), healthcare (14%), and financial services (13%). Its largest positions — CVS Health Corp (NYSE:CVS), Goldman Sachs Group (NYSE:GS), and Boeing (NYSE:BA) — are each a small slice of the portfolio. Launched 16 years ago, VCLT applies an environmental, social, and governance (ESG) screen, which may matter to those seeking responsible investing criteria.
TLT, in contrast, is entirely focused on U.S. Treasury bonds, with 100% of assets in cash and government debt and 45 holdings. Its top positions are simply Treasury bonds, each representing a small proportion of the fund. This pure government exposure means TLT is highly sensitive to interest rate changes and carries no corporate credit risk.
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Foolish take
Although the Vanguard Long-Term Corporate Bond ETF (VCLT) and iShares 20 Year Treasury Bond ETF (TLT) both offer investments with long time horizons in the bond market, they are quite different in some key aspects.
VCLT possesses a substantially lower expense ratio than TLT, which makes it cost efficient. Another plus is that its holdings are highly diversified across many sectors.
However, TLT's focus on U.S. Treasury bonds makes it a safer investment, as it's not as vulnerable to the impact of economic downturns and risk of default that's present in corporate bonds. That safety comes at the cost of a lower yield compared to VCLT.
Choosing between the two comes down to whether you want the financial security of U.S. Treasuries, which can be preferable to investors who are closer to or in retirement, or prefer the lower cost and higher yield of corporate bonds, and are willing to take on the higher credit risk.
Glossary
Expense ratio: The annual fee, as a percentage of assets, that a fund charges to cover operating costs.
Dividend yield: Annual income from dividends expressed as a percentage of the fund's current price.
Drawdown: The maximum observed loss from a fund's peak value to its lowest point over a period.
Beta: A measure of a fund's volatility compared to the overall market, typically the S&P 500.
Assets under management (AUM): The total market value of assets a fund manages on behalf of investors.
Investment-grade: Bonds rated as relatively low risk of default by major credit rating agencies.
Corporate bonds: Debt securities issued by companies to raise capital, typically paying interest to investors.
U.S. Treasuries: Debt securities issued by the U.S. government, considered very low risk.
Interest rate sensitivity: How much a bond or fund's price changes in response to interest rate movements.
ESG screen: Criteria used to select investments based on environmental, social, and governance factors.
Max drawdown: The largest percentage drop from a fund’s highest to lowest value over a specified period.
Total return: The investment's price change plus all dividends and distributions, assuming those payouts are reinvested.
Robert Izquierdo has positions in Boeing and CVS Health. The Motley Fool has positions in and recommends Boeing and Goldman Sachs Group. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.