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EEM vs. GOVT: What’s The Difference?

The iShares MSCI Emerging Markets ETF (EEM) and the iShares U.S. Treasury Bond ETF (GOVT) are both among the Top 100 ETFs. EEM is a iShares Diversified Emerging Mkts fund and GOVT is a iShares Intermediate Government fund. So, what’s the difference between EEM and GOVT? And which fund is better?

The expense ratio of EEM is 0.63 percentage points higher than GOVT’s (0.68% vs. 0.05%). EEM also has a high exposure to the technology sector while GOVT is mostly comprised of AAA bonds. Overall, EEM has provided higher returns than GOVT over the past ten years.

In this article, we’ll compare EEM vs. GOVT. We’ll look at fund composition and performance, as well as at their annual returns and holdings. Moreover, I’ll also discuss EEM’s and GOVT’s risk metrics, industry exposure, and portfolio growth and examine how these affect their overall returns.

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Summary

EEMGOVT
NameiShares MSCI Emerging Markets ETFiShares U.S. Treasury Bond ETF
CategoryDiversified Emerging MktsIntermediate Government
IssueriSharesiShares
AUM30.33B17.07B
Avg. Return5.47%2.67%
Div. Yield1.48%1.0%
Expense Ratio0.68%0.05%

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 iShares U.S. Treasury Bond ETF (GOVT) is a Intermediate Government fund that is issued by iShares. It currently has 17.07B total assets under management and has yielded an average annual return of 2.67% over the past 10 years. The fund has a dividend yield of 1.0% with an expense ratio of 0.05%.

EEM’s dividend yield is 0.48% higher than that of GOVT (1.48% vs. 1.0%). Also, EEM yielded on average 2.80% more per year over the past decade (5.47% vs. 2.67%). The expense ratio of EEM is 0.63 percentage points higher than GOVT’s (0.68% vs. 0.05%).

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Fund Composition

Holdings

EEM - Holdings

EEM HoldingsWeight
Taiwan Semiconductor Manufacturing Co Ltd6.36%
Alibaba Group Holding Ltd Ordinary Shares4.58%
Tencent Holdings Ltd4.41%
Samsung Electronics Co Ltd4.05%
Meituan1.24%
Vale SA1.04%
Naspers Ltd Class N1.04%
Reliance Industries Ltd Shs Dematerialised0.97%
Infosys Ltd0.92%
China Construction Bank Corp Class H0.83%

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%.

GOVT - Holdings

GOVT Bond SectorsWeight
AAA100.0%
Others0.0%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%

GOVT’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.

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Risk Analysis

EEMGOVT
Mean Return0.380
R-squared83.50
Std. Deviation17.790
Alpha-2.330
Beta1.080
Sharpe Ratio0.220
Treynor Ratio2.220

The iShares MSCI Emerging Markets ETF (EEM) has a Alpha of -2.33 with a Beta of 1.08 and a R-squared of 83.5. Its Sharpe Ratio is 0.22 while EEM’s Standard Deviation is 17.79. Furthermore, the fund has a Mean Return of 0.38 and a Treynor Ratio of 2.22.

The iShares U.S. Treasury Bond ETF (GOVT) has a Standard Deviation of 0 with a Mean Return of 0 and a R-squared of 0. Its Sharpe Ratio is 0 while GOVT’s Treynor Ratio is 0. Furthermore, the fund has a Alpha of 0 and a Beta of 0.

EEM’s Mean Return is 0.38 points higher than that of GOVT and its R-squared is 83.50 points higher. With a Standard Deviation of 17.79, EEM is slightly more volatile than GOVT. The Alpha and Beta of EEM are 2.33 points lower and 1.08 points higher than GOVT’s Alpha and Beta.

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Performance

Annual Returns

EEM vs. GOVT - Annual Returns

YearEEMGOVT
202017.56%7.92%
201917.67%6.71%
2018-14.98%0.74%
201736.42%2.19%
201610.51%0.92%
2015-15.41%0.76%
2014-2.82%4.99%
2013-3.14%-2.84%
201217.32%0.0%
2011-18.87%0.0%
201015.93%0.0%

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 2020 was the strongest year for GOVT, returning 7.92% on an annual basis. The poorest year for GOVT in the last ten years was 2013, with a yield of -2.84%. Most years the iShares U.S. Treasury Bond ETF has given investors modest returns, such as in 2018, 2015, and 2016, when gains were 0.74%, 0.76%, and 0.92% respectively.

Portfolio Growth

EEM vs. GOVT - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
EEM$10,000$14,1175.47%
GOVT$10,000$12,2972.67%

A $10,000 investment in EEM would have resulted in a final balance of $14,117. This is a profit of $4,117 over 8 years and amounts to a compound annual growth rate (CAGR) of 5.47%.

With a $10,000 investment in GOVT, the end total would have been $12,297. This equates to a $2,297 profit over 8 years and a compound annual growth rate (CAGR) of 2.67%.

EEM’s CAGR is 2.80 percentage points higher than that of GOVT and as a result, would have yielded $1,820 more on a $10,000 investment. Thus, EEM outperformed GOVT by 2.80% annually.


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