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EEM vs. HYG: What’s The Difference?

The iShares MSCI Emerging Markets ETF (EEM) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) are both among the Top 100 ETFs. EEM is a iShares Diversified Emerging Mkts fund and HYG is a iShares High Yield Bond fund. So, what’s the difference between EEM and HYG? And which fund is better?

The expense ratio of EEM is 0.20 percentage points higher than HYG’s (0.68% vs. 0.48%). EEM also has a high exposure to the technology sector while HYG is mostly comprised of BB bonds. Overall, EEM has provided lower returns than HYG over the past ten years.

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

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Summary

EEMHYG
NameiShares MSCI Emerging Markets ETFiShares iBoxx $ High Yield Corporate Bond ETF
CategoryDiversified Emerging MktsHigh Yield Bond
IssueriSharesiShares
AUM30.33B20.03B
Avg. Return5.47%6.42%
Div. Yield1.48%4.44%
Expense Ratio0.68%0.48%

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 iBoxx $ High Yield Corporate Bond ETF (HYG) is a High Yield Bond fund that is issued by iShares. It currently has 20.03B total assets under management and has yielded an average annual return of 6.42% over the past 10 years. The fund has a dividend yield of 4.44% with an expense ratio of 0.48%.

EEM’s dividend yield is 2.96% lower than that of HYG (1.48% vs. 4.44%). Also, EEM yielded on average 0.94% less per year over the past decade (5.47% vs. 6.42%). The expense ratio of EEM is 0.20 percentage points higher than HYG’s (0.68% vs. 0.48%).

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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%.

HYG - Holdings

HYG Bond SectorsWeight
BB56.53%
B31.27%
Below B11.4%
BBB0.61%
AAA0.28%
A0.0%
AA0.0%
US Government0.0%
Others-0.09%

HYG’s Top Bond Sectors are ratings of BB, B, Below B, BBB, and AAA at 56.53%, 31.27%, 11.4%, 0.61%, and 0.28%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.

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Risk Analysis

EEMHYG
Mean Return0.380.46
R-squared83.54.1
Std. Deviation17.796.96
Alpha-2.333.58
Beta1.080.48
Sharpe Ratio0.220.7
Treynor Ratio2.2210.01

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

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a Treynor Ratio of 10.01 with a Beta of 0.48 and a Alpha of 3.58. Its Standard Deviation is 6.96 while HYG’s Mean Return is 0.46. Furthermore, the fund has a R-squared of 4.1 and a Sharpe Ratio of 0.7.

EEM’s Mean Return is 0.08 points lower than that of HYG and its R-squared is 79.40 points higher. With a Standard Deviation of 17.79, EEM is slightly more volatile than HYG. The Alpha and Beta of EEM are 5.91 points lower and 0.60 points higher than HYG’s Alpha and Beta.

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Performance

Annual Returns

EEM vs. HYG - Annual Returns

YearEEMHYG
202017.56%4.12%
201917.67%14.23%
2018-14.98%-1.93%
201736.42%6.09%
201610.51%13.92%
2015-15.41%-5.55%
2014-2.82%2.0%
2013-3.14%5.9%
201217.32%13.83%
2011-18.87%5.89%
201015.93%12.07%

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 2019 was the strongest year for HYG, returning 14.23% on an annual basis. The poorest year for HYG in the last ten years was 2015, with a yield of -5.55%. Most years the iShares iBoxx $ High Yield Corporate Bond ETF has given investors modest returns, such as in 2011, 2013, and 2017, when gains were 5.89%, 5.9%, and 6.09% respectively.

Portfolio Growth

EEM vs. HYG - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
EEM$10,000$15,5785.47%
HYG$10,000$19,4276.42%

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 HYG, the end total would have been $19,427. This equates to a $9,427 profit over 11 years and a compound annual growth rate (CAGR) of 6.42%.

EEM’s CAGR is 0.94 percentage points lower than that of HYG and as a result, would have yielded $3,849 less on a $10,000 investment. Thus, EEM performed worse than HYG by 0.94% annually.


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