VCLT vs TLT: Which Long-Term Bond ETF Delivers Better Risk-Adjusted Returns?

Performance First: Why Volatility Matters

When comparing VCLT (Vanguard Long-Term Corporate Bond ETF) and TLT (iShares 20 Year Treasury Bond ETF), the most striking difference emerges in their risk profiles. Over the past five years, VCLT limited its maximum drawdown to -34.31%, significantly outperforming TLT’s -45.06% decline. This translates into real investor outcomes: a $1,000 investment in VCLT grew to $695 over five years, while TLT returned only $564.

The contrast reflects a fundamental truth about bond markets: U.S. Treasuries exhibit higher interest rate sensitivity than investment-grade corporate bonds. TLT carries a beta of 2.36 relative to the S&P 500, meaning it swings far more dramatically with market movements. In comparison, VCLT’s beta of 0.67 reveals a more stable investment vehicle—crucial for risk-averse investors or those near retirement.

The Cost Advantage: VCLT’s Compelling Economics

Where VCLT truly distinguishes itself is in expense efficiency. The fund charges just 0.03% annually, a striking 0.10 percentage-point advantage over TLT’s 0.15% fee. On a $100,000 investment, this translates to $100 annual savings with VCLT—amounts that compound meaningfully over decades.

Beyond costs, VCLT delivers superior income generation. Its 5.4% dividend yield surpasses TLT’s 4.4% by 110 basis points—a material difference for income-focused portfolios. The 1-year return figures tell another story: VCLT declined just 1.6% while TLT dropped 4.0%, suggesting corporate bonds weathered recent market conditions more gracefully.

Asset Composition: Diversification vs. Purity

VCLT holds 257 securities distributed across investment-grade corporate bond issuers. Healthcare (14%), financial services (13%), and other sectors comprise a balanced portfolio. Largest holdings include CVS Health (NYSE: CVS), Goldman Sachs Group (NYSE: GS), and Boeing (NYSE: BA)—each representing a minor portfolio fraction. Notably, VCLT applies environmental, social, and governance (ESG) screening, appealing to responsible investors.

TLT takes the opposite approach: 100% allocation to U.S. Treasury bonds across 45 holdings, each a small position. This pure government exposure eliminates corporate credit risk entirely. Investors seeking Treasury-only exposure parallel European bond ETF structures that prioritize sovereign debt stability.

Scale and Market Presence

TLT commands substantially larger assets under management at $49.7 billion versus VCLT’s $9.1 billion. This scale advantage provides deeper liquidity and tighter bid-ask spreads, benefiting frequent traders. However, for buy-and-hold investors, size matters less than performance characteristics.

Investment Decision Framework

The choice between these funds hinges on investor profile and market outlook:

Choose VCLT if you:

• Prioritize lower fees and higher current income
• Can tolerate modest corporate credit risk
• Seek smoother performance with lower volatility
• Want diversified sector exposure
• Value ESG considerations

Choose TLT if you:

• Demand pure government bond exposure
• Need maximum safety during economic uncertainty
• Accept lower yields in exchange for Treasury backing
• Prefer largest fund scale and institutional adoption
• Are highly sensitive to interest rate movements

Both funds address the long-duration bond market effectively. VCLT’s corporate approach delivers better risk-adjusted returns and income, while TLT’s Treasury-exclusive mandate provides unmatched safety—at the cost of lower yields and higher volatility. The optimal choice depends entirely on your financial goals, risk tolerance, and investment timeline.