The iShares MSCI Emerging Markets ETF (EEM) and the Dimensional U.S. Core Equity 2 ETF (DFAC) are both among the Top 100 ETFs. EEM is a iShares Diversified Emerging Mkts fund and DFAC is a Dimensional Fund Advisors Large Blend fund. So, what’s the difference between EEM and DFAC? And which fund is better?
The expense ratio of EEM is 0.49 percentage points higher than DFAC’s (0.68% vs. 0.19%). EEM also has a lower exposure to the technology sector and a higher standard deviation. Overall, EEM has provided lower returns than DFAC over the past ten years.
In this article, we’ll compare EEM vs. DFAC. We’ll look at risk metrics and annual returns, as well as at their holdings and fund composition. Moreover, I’ll also discuss EEM’s and DFAC’s industry exposure, performance, and portfolio growth and examine how these affect their overall returns.
Summary
| EEM | DFAC | |
| Name | iShares MSCI Emerging Markets ETF | Dimensional U.S. Core Equity 2 ETF |
| Category | Diversified Emerging Mkts | Large Blend |
| Issuer | iShares | Dimensional Fund Advisors |
| AUM | 30.33B | 13.53B |
| Avg. Return | 5.47% | 13.93% |
| Div. Yield | 1.48% | 1.0% |
| Expense Ratio | 0.68% | 0.19% |
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%.
The Dimensional U.S. Core Equity 2 ETF (DFAC) is a Large Blend fund that is issued by Dimensional Fund Advisors. It currently has 13.53B total assets under management and has yielded an average annual return of 13.93% over the past 10 years. The fund has a dividend yield of 1.0% with an expense ratio of 0.19%.
EEM’s dividend yield is 0.48% higher than that of DFAC (1.48% vs. 1.0%). Also, EEM yielded on average 8.46% less per year over the past decade (5.47% vs. 13.93%). The expense ratio of EEM is 0.49 percentage points higher than DFAC’s (0.68% vs. 0.19%).
Fund Composition
Industry Exposure
| EEM | DFAC | |
| Technology | 21.36% | 22.81% |
| Industrials | 4.61% | 14.13% |
| Energy | 5.17% | 2.67% |
| Communication Services | 11.76% | 7.63% |
| Utilities | 1.99% | 1.54% |
| Healthcare | 5.06% | 12.09% |
| Consumer Defensive | 5.45% | 5.94% |
| Real Estate | 1.98% | 0.37% |
| Financial Services | 18.39% | 16.17% |
| Consumer Cyclical | 15.16% | 13.09% |
| Basic Materials | 9.07% | 3.56% |
The iShares MSCI Emerging Markets ETF (EEM) has the most exposure to the Technology sector at 21.36%. This is followed by Financial Services and Consumer Cyclical at 18.39% and 15.16% respectively. Utilities (1.99%), Industrials (4.61%), and Healthcare (5.06%) only make up 11.66% of the fund’s total assets.
EEM’s mid-section with moderate exposure is comprised of Energy, Consumer Defensive, Basic Materials, Communication Services, and Consumer Cyclical stocks at 5.17%, 5.45%, 9.07%, 11.76%, and 15.16%.
The Dimensional U.S. Core Equity 2 ETF (DFAC) has the most exposure to the Technology sector at 22.81%. This is followed by Financial Services and Industrials at 16.17% and 14.13% respectively. Utilities (1.54%), Energy (2.67%), and Basic Materials (3.56%) only make up 7.77% of the fund’s total assets.
DFAC’s mid-section with moderate exposure is comprised of Consumer Defensive, Communication Services, Healthcare, Consumer Cyclical, and Industrials stocks at 5.94%, 7.63%, 12.09%, 13.09%, and 14.13%.
EEM is 1.45% less exposed to the Technology sector than DFAC (21.36% vs 22.81%). EEM’s exposure to Financial Services and Consumer Cyclical stocks is 2.22% higher and 2.07% higher respectively (18.39% vs. 16.17% and 15.16% vs. 13.09%). In total, Utilities, Industrials, and Healthcare also make up 16.10% less of the fund’s holdings compared to DFAC (11.66% vs. 27.76%).
Holdings
| 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%.
| DFAC Holdings | Weight |
| Apple Inc | 4.7% |
| Microsoft Corp | 3.81% |
| Amazon.com Inc | 2.39% |
| Johnson & Johnson | 1.05% |
| Facebook Inc Class A | 1.05% |
| JPMorgan Chase & Co | 1.0% |
| Alphabet Inc Class C | 0.85% |
| Alphabet Inc Class A | 0.84% |
| Berkshire Hathaway Inc Class B | 0.75% |
| Visa Inc Class A | 0.74% |
DFAC’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Johnson & Johnson, and Facebook Inc Class A at 4.7%, 3.81%, 2.39%, 1.05%, and 1.05%.
JPMorgan Chase & Co (1.0%), Alphabet Inc Class C (0.85%), and Alphabet Inc Class A (0.84%) have a slightly smaller but still significant weight. Berkshire Hathaway Inc Class B and Visa Inc Class A are also represented in the DFAC’s holdings at 0.75% and 0.74%.
Risk Analysis
| EEM | DFAC | |
| Mean Return | 0.38 | 1.19 |
| R-squared | 83.5 | 95.1 |
| Std. Deviation | 17.79 | 15.55 |
| Alpha | -2.33 | -2.75 |
| Beta | 1.08 | 1.12 |
| Sharpe Ratio | 0.22 | 0.88 |
| Treynor Ratio | 2.22 | 11.85 |
The iShares MSCI Emerging Markets ETF (EEM) has a Beta of 1.08 with a R-squared of 83.5 and a Alpha of -2.33. Its Mean Return is 0.38 while EEM’s Sharpe Ratio is 0.22. Furthermore, the fund has a Treynor Ratio of 2.22 and a Standard Deviation of 17.79.
The Dimensional U.S. Core Equity 2 ETF (DFAC) has a Mean Return of 1.19 with a Alpha of -2.75 and a Beta of 1.12. Its Sharpe Ratio is 0.88 while DFAC’s Standard Deviation is 15.55. Furthermore, the fund has a R-squared of 95.1 and a Treynor Ratio of 11.85.
EEM’s Mean Return is 0.81 points lower than that of DFAC and its R-squared is 11.60 points lower. With a Standard Deviation of 17.79, EEM is slightly more volatile than DFAC. The Alpha and Beta of EEM are 0.42 points higher and 0.04 points lower than DFAC’s Alpha and Beta.
Performance
Annual Returns
| Year | EEM | DFAC |
| 2020 | 17.56% | 15.8% |
| 2019 | 17.67% | 29.54% |
| 2018 | -14.98% | -9.43% |
| 2017 | 36.42% | 18.82% |
| 2016 | 10.51% | 16.31% |
| 2015 | -15.41% | -2.53% |
| 2014 | -2.82% | 9.56% |
| 2013 | -3.14% | 37.55% |
| 2012 | 17.32% | 17.93% |
| 2011 | -18.87% | -1.96% |
| 2010 | 15.93% | 21.67% |
EEM had its best year in 2017 with an annual return of 36.42%. EEM’s worst year over the past decade yielded -18.87% and occurred in 2011. In most years the iShares MSCI Emerging Markets ETF provided moderate returns such as in 2014, 2016, and 2010 where annual returns amounted to -2.82%, 10.51%, and 15.93% respectively.
The year 2013 was the strongest year for DFAC, returning 37.55% on an annual basis. The poorest year for DFAC in the last ten years was 2018, with a yield of -9.43%. Most years the Dimensional U.S. Core Equity 2 ETF has given investors modest returns, such as in 2020, 2016, and 2012, when gains were 15.8%, 16.31%, and 17.93% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| EEM | $10,000 | $15,578 | 5.47% |
| DFAC | $10,000 | $38,796 | 13.93% |
A $10,000 investment in EEM would have resulted in a final balance of $15,578. This is a profit of $5,578 over 11 years and amounts to a compound annual growth rate (CAGR) of 5.47%.
With a $10,000 investment in DFAC, the end total would have been $38,796. This equates to a $28,796 profit over 11 years and a compound annual growth rate (CAGR) of 13.93%.
EEM’s CAGR is 8.46 percentage points lower than that of DFAC and as a result, would have yielded $23,218 less on a $10,000 investment. Thus, EEM performed worse than DFAC by 8.46% annually.
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