MBB vs VMBS: Which ETF Is Better in 2026?
A metric-by-metric comparison of iShares MBS ETF (MBB) and Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) — both Mortgage-Backed funds — using ETFValuer's daily-updated rankings.
Educational content — not financial advice. Data as of July 25, 2026. ~5 minute read.
The Verdict
MBB and VMBS compete directly — both are Mortgage-Backed funds chasing the same job in a portfolio. That makes this a genuine either/or: the index each tracks, what it costs, and how it has handled drawdowns are what separate them, not the broad exposure they give you.
On ETFValuer's overall model — which blends return, risk-adjusted performance, cost, drawdown, size and volatility — MBB scores higher: 60.3 (Grade C) versus 59.8 for VMBS. That doesn't make VMBS a bad fund; it means MBB currently edges it out on this specific mix of factors. Read the metric-by-metric breakdown below before deciding which matters more for your own portfolio.
Head-to-Head: Every Metric
| MBB | VMBS | |
|---|---|---|
| Category | Mortgage-Backed | Mortgage-Backed |
| Expense ratio | 0.04% | 0.03% |
| Fund size (AUM) | $39.6B | $17.3B |
| Dividend yield | 4.26% | 4.17% |
| 1-year return | +4.51% | +4.80% |
| 3-year return | +13.08% | +13.80% |
| Volatility | 4.43% | 4.27% |
| Max drawdown | -7.18% | -7.23% |
| Sharpe ratio | -0.11 | -0.05 |
| ETFValuer score | 60.3 | 59.8 |
| Grade | C | C |
| Overall rank | #242 | #250 |
Bold marks the better value in each row. "Better" is directional only (e.g. lower cost, higher return) — it isn't a recommendation by itself. See the full methodology.
Cost
On cost, the two are essentially tied — MBB charges 0.04% a year versus VMBS's 0.03%. A difference this small (about $1.00 a year on a $10,000 position) isn't a reason to choose one fund over the other.
What MBB's Fees Cost You
MBB charges an expense ratio of 0.04% a year, deducted automatically from the fund's value. Small percentages compound into real money — adjust the figures below to see the impact on your own numbers.
Assumes a constant gross return and no additional contributions — a simplification, but it isolates exactly what the expense ratio costs. Try the full fee calculator to model contributions and compare any two funds.
Performance & Risk
Over the trailing 3 years, VMBS returned +13.80% versus +13.08% for MBB — a gap of about 0.7 percentage points. On risk, MBB has held up better historically, with a shallower max drawdown (-7.18% vs. -7.23%). VMBS currently has the better risk-adjusted return (Sharpe ratio of -0.05 vs. -0.11), meaning it delivered more return per unit of volatility taken on.
How Closely Do They Track Each Other?
Over the last 3.0 years of daily returns (752 shared trading days), MBB and VMBS show a extremely high correlation of 0.984 — very close substitutes. Holding both would add very little diversification: when one falls, the other almost always falls with it. Treat these as alternatives to each other, not as complements in the same portfolio.
| Measure | Value | What it means |
|---|---|---|
| Daily return correlation | 0.984 | Extremely high — very close substitutes |
| R-squared | 96.7% | 96.7% of MBB's daily moves are explained by VMBS's |
| Tracking error (annualised) | 1.12% | Typical yearly spread between the two funds' returns |
| Annualised return over 3.0y | MBB +4.22% · VMBS +4.42% | VMBS ahead by 0.20 points a year |
Correlation alone understates how far these can drift. Across every rolling 12-month window in the period, MBB finished as much as +0.4 points ahead of VMBS at the best extreme and -0.6 points at the worst — a 1.0-point spread between the best and worst year of relative performance. Two funds can correlate tightly day to day and still deliver very different outcomes over any single year you happen to hold them.
Calculated from daily total returns over the trailing 3-year window, recomputed every day this site refreshes. Correlation of 1.00 means the two funds moved in lockstep; 0.00 means their daily moves were unrelated.
Holdings Overlap
MBB and VMBS share no companies among their top 10 reported holdings. That points to genuinely different exposure, so holding both is more likely to diversify than to duplicate. Full portfolios may still overlap further down the list.
Based on the top 10 holdings in each fund's most recent SEC N-PORT-P filing.
Which One Should You Pick?
Lean MBB if…
- You prefer to keep holdings under one roof at iShares
Lean VMBS if…
- You want the lower running cost — 0.03% vs 0.04%, about $1 a year less on a $10,000 position
Whichever you pick, holding both at full weight is usually the wrong answer — see the overlap and correlation sections above.
Frequently Asked Questions
Is MBB or VMBS better?
On ETFValuer's overall model — which blends return, risk-adjusted performance, cost, drawdown, size and volatility — MBB scores higher: 60.3 (Grade C) versus 59.8 for VMBS. That doesn't make VMBS a bad fund; it means MBB currently edges it out on this specific mix of factors. Read the metric-by-metric breakdown below before deciding which matters more for your own portfolio.
Which has the lower expense ratio, MBB or VMBS?
VMBS currently has the lower expense ratio (0.03% vs. 0.04%).
Can I hold both MBB and VMBS?
You can, but there's little point. MBB and VMBS have a daily return correlation of 0.98 over the past 3.0 years, meaning they move almost in lockstep. Holding both roughly doubles a single bet rather than spreading it — pick whichever wins on cost and liquidity and put the money in one place.
Go deeper on either fund
Full daily-updated metrics, holdings context, and category peers.