This Vanguard ETF Holds More Assets Than Its iShares Rival. Is It a Better Buy?

Vanguard and iShares are two of the biggest brand names among exchange-traded fund (ETF) sponsors. Their wide range of fund offerings coupled with rock bottom fees make them a preferred destination for investors.

The two issuers offer competing ETFs in many categories, including size, style, sector, and fixed income. In many cases, portfolio composition and fee levels are comparable. Sometimes, it just comes down to the fact that investors prefer the bigger and more popular fund!

The Financials sector is one of those categories. Vanguard offers the Vanguard Financials ETF (NYSEMKT: VFH). BlackRock, which administers the iShares lineup, has the iShares U.S. Financials ETF (NYSEMKT: IYF). As is the case with many ETF pairs that look almost identical on the surface, figuring out which is better usually comes down to the details.

Let's break down these two industry heavyweights to see which is a better buy right now.

Image source: Getty Images.

Vanguard Financials ETF vs. iShares U.S. Financials ETF

The Vanguard fund tracks the MSCI US IMI Financials 25/50 Index. It's essentially a portfolio of all companies falling into the Financials sector according to the Global Industry Classification Standard (GICS). Companies of all sizes are included and weighted by market capitalization.

The iShares fund follows the Russell 1000 Financials 40 Act 15/22.5 Daily Capped Index. It targets U.S. large-cap companies that are assigned to the Financials industry by the Industry Classification Benchmark (ICB) sector classification framework. Qualifying components are also weighted by market cap.

For the most part, the differences between the two strategies are largely semantic. There are different sector classification standards, but they categorize the vast majority of companies the same.

From a standpoint of portfolio composition, the only real difference is that the Vanguard ETF includes a slightly higher percentage of small-cap stocks than the iShares ETF. Vanguard starts with an all-cap universe whereas the iShares starts with the Russell 1000. Given that both portfolios are cap-weighted, the inclusion of small-cap stocks makes only a minor difference for the Vanguard ETF. It has roughly a 9% allocation versus a 6% weighting in the iShares ETF. That tilt also helps make the price-to-earnings (P/E) ratio for the Vanguard ETF a little lower as well, but the difference, again, is pretty minor.

The biggest difference between the two funds is the expense ratio. The Vanguard Financials ETF charges just 0.09% annually, while the iShares U.S. Financials ETF charges 0.38%. In an industry where fees matter a lot, that gap is huge. Given that the compositions of the two funds are very similar, this gives the Vanguard ETF a big advantage.

Its large-cap tilt has, however, has given the iShares ETF the long-term performance advantage. During the past 10 years (as of Jan 2, 2026), its 14.3% average annual return has beaten Vanguard's 14% return.

Vanguard vs. iShares: Which is the better buy right now?

At a high level, the composition of the two funds is very similar and performance correlation is very high. One consideration is how you feel about large-cap stocks in the near future. If you think they will outperform, the iShares U.S. Financials ETF might be the better bet.

However, the expense ratio difference is the dealbreaker for me. On that basis alone, Vanguard is automatically ahead on annual performance by 0.29% (all other factors being equal). If the difference in expense ratios were just a basis point or two, I'd say it's a toss-up. But 29 basis points every year is difficult to give up.

The Vanguard ETF also has roughly $13.7 billion in assets under management (AUM) compared to $4.3 billion for the iShares ETF. A bigger asset base generally means more liquidity and tighter spreads, another cost advantage for Vanguard and especially more frequent traders.

For me, the Vanguard Financials ETF is the better buy. Investors get a broader exposure to the Financials sector with this fund, but it's the overall cost advantage that's the biggest advantage. Given the very similar composition and performance of the two funds, Vanguard's lower expense ratio probably makes it the outperformer over the longer term.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.