The Vanguard Total Bond Market Index Fund ETF Shares (BND) and the iShares MSCI Emerging Markets ETF (EEM) are both among the Top 100 ETFs. BND is a Vanguard Intermediate-Term Bond fund and EEM is a iShares Diversified Emerging Mkts fund. So, what’s the difference between BND and EEM? And which fund is better?
The expense ratio of BND is 0.65 percentage points lower than EEM’s (0.03% vs. 0.68%). BND is mostly comprised of AAA bonds while EEM has a high exposure to the technology sector. Overall, BND has provided lower returns than EEM over the past ten years.
In this article, we’ll compare BND vs. EEM. We’ll look at fund composition and performance, as well as at their portfolio growth and holdings. Moreover, I’ll also discuss BND’s and EEM’s annual returns, industry exposure, and risk metrics and examine how these affect their overall returns.
Summary
| BND | EEM | |
| Name | Vanguard Total Bond Market Index Fund ETF Shares | iShares MSCI Emerging Markets ETF |
| Category | Intermediate-Term Bond | Diversified Emerging Mkts |
| Issuer | Vanguard | iShares |
| AUM | 312.15B | 30.33B |
| Avg. Return | 4.09% | 5.47% |
| Div. Yield | 2.02% | 1.48% |
| Expense Ratio | 0.03% | 0.68% |
The Vanguard Total Bond Market Index Fund ETF Shares (BND) is a Intermediate-Term Bond fund that is issued by Vanguard. It currently has 312.15B total assets under management and has yielded an average annual return of 4.09% over the past 10 years. The fund has a dividend yield of 2.02% with an expense ratio of 0.03%.
The iShares MSCI Emerging Markets ETF (EEM) is a Diversified Emerging Mkts fund that is issued by iShares. It currently has 30.33B total assets under management and has yielded an average annual return of 5.47% over the past 10 years. The fund has a dividend yield of 1.48% with an expense ratio of 0.68%.
BND’s dividend yield is 0.54% higher than that of EEM (2.02% vs. 1.48%). Also, BND yielded on average 1.38% less per year over the past decade (4.09% vs. 5.47%). The expense ratio of BND is 0.65 percentage points lower than EEM’s (0.03% vs. 0.68%).
Fund Composition
Holdings
| BND Bond Sectors | Weight |
| AAA | 68.72% |
| BBB | 16.17% |
| A | 11.87% |
| AA | 3.34% |
| Below B | 0.01% |
| B | 0.0% |
| BB | 0.0% |
| US Government | 0.0% |
| Others | -0.11% |
BND’s Top Bond Sectors are ratings of AAA, BBB, A, AA, and Below B at 68.72%, 16.17%, 11.87%, 3.34%, and 0.01%. The fund is less weighted towards B (0.0%), BB (0.0%), and US Government (0.0%) rated bonds.
| EEM Holdings | Weight |
| Taiwan Semiconductor Manufacturing Co Ltd | 6.36% |
| Alibaba Group Holding Ltd Ordinary Shares | 4.58% |
| Tencent Holdings Ltd | 4.41% |
| Samsung Electronics Co Ltd | 4.05% |
| Meituan | 1.24% |
| Vale SA | 1.04% |
| Naspers Ltd Class N | 1.04% |
| Reliance Industries Ltd Shs Dematerialised | 0.97% |
| Infosys Ltd | 0.92% |
| China Construction Bank Corp Class H | 0.83% |
EEM’s Top Holdings are Taiwan Semiconductor Manufacturing Co Ltd, Alibaba Group Holding Ltd Ordinary Shares, Tencent Holdings Ltd, Samsung Electronics Co Ltd, and Meituan at 6.36%, 4.58%, 4.41%, 4.05%, and 1.24%.
Vale SA (1.04%), Naspers Ltd Class N (1.04%), and Reliance Industries Ltd Shs Dematerialised (0.97%) have a slightly smaller but still significant weight. Infosys Ltd and China Construction Bank Corp Class H are also represented in the EEM’s holdings at 0.92% and 0.83%.
Risk Analysis
| BND | EEM | |
| Mean Return | 0.28 | 0.38 |
| R-squared | 99.34 | 83.5 |
| Std. Deviation | 3.14 | 17.79 |
| Alpha | -0.14 | -2.33 |
| Beta | 1.04 | 1.08 |
| Sharpe Ratio | 0.88 | 0.22 |
| Treynor Ratio | 2.64 | 2.22 |
The Vanguard Total Bond Market Index Fund ETF Shares (BND) has a Sharpe Ratio of 0.88 with a Treynor Ratio of 2.64 and a Alpha of -0.14. Its Mean Return is 0.28 while BND’s Beta is 1.04. Furthermore, the fund has a Standard Deviation of 3.14 and a R-squared of 99.34.
The iShares MSCI Emerging Markets ETF (EEM) has a Treynor Ratio of 2.22 with a Alpha of -2.33 and a R-squared of 83.5. Its Mean Return is 0.38 while EEM’s Sharpe Ratio is 0.22. Furthermore, the fund has a Standard Deviation of 17.79 and a Beta of 1.08.
BND’s Mean Return is 0.10 points lower than that of EEM and its R-squared is 15.84 points higher. With a Standard Deviation of 3.14, BND is slightly less volatile than EEM. The Alpha and Beta of BND are 2.19 points higher and 0.04 points lower than EEM’s Alpha and Beta.
Performance
Annual Returns
| Year | BND | EEM |
| 2020 | 7.71% | 17.56% |
| 2019 | 8.71% | 17.67% |
| 2018 | -0.04% | -14.98% |
| 2017 | 3.62% | 36.42% |
| 2016 | 2.57% | 10.51% |
| 2015 | 0.39% | -15.41% |
| 2014 | 5.96% | -2.82% |
| 2013 | -2.14% | -3.14% |
| 2012 | 4.04% | 17.32% |
| 2011 | 7.71% | -18.87% |
| 2010 | 6.51% | 15.93% |
BND had its best year in 2019 with an annual return of 8.71%. BND’s worst year over the past decade yielded -2.14% and occurred in 2013. In most years the Vanguard Total Bond Market Index Fund ETF Shares provided moderate returns such as in 2017, 2012, and 2014 where annual returns amounted to 3.62%, 4.04%, and 5.96% respectively.
The year 2017 was the strongest year for EEM, returning 36.42% on an annual basis. The poorest year for EEM in the last ten years was 2011, with a yield of -18.87%. Most years the iShares MSCI Emerging Markets ETF has given investors modest returns, such as in 2014, 2016, and 2010, when gains were -2.82%, 10.51%, and 15.93% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| BND | $10,000 | $15,456 | 4.09% |
| EEM | $10,000 | $15,578 | 5.47% |
A $10,000 investment in BND would have resulted in a final balance of $15,456. This is a profit of $5,456 over 11 years and amounts to a compound annual growth rate (CAGR) of 4.09%.
With a $10,000 investment in EEM, the end total would have been $15,578. This equates to a $5,578 profit over 11 years and a compound annual growth rate (CAGR) of 5.47%.
BND’s CAGR is 1.38 percentage points lower than that of EEM and as a result, would have yielded $122 less on a $10,000 investment. Thus, BND performed worse than EEM by 1.38% annually.
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