EEM vs. IGSB: What’s The Difference?

The iShares MSCI Emerging Markets ETF (EEM) and the iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB) are both among the Top 100 ETFs. EEM is a iShares Diversified Emerging Mkts fund and IGSB is a iShares Short-Term Bond fund. So, what’s the difference between EEM and IGSB? And which fund is better?

The expense ratio of EEM is 0.62 percentage points higher than IGSB’s (0.68% vs. 0.06%). EEM also has a high exposure to the technology sector while IGSB is mostly comprised of BBB bonds. Overall, EEM has provided higher returns than IGSB over the past ten years.

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

Summary

EEM IGSB
Name iShares MSCI Emerging Markets ETF iShares 1-5 Year Investment Grade Corporate Bond ETF
Category Diversified Emerging Mkts Short-Term Bond
Issuer iShares iShares
AUM 30.33B 26.63B
Avg. Return 5.47% 2.51%
Div. Yield 1.48% 2.02%
Expense Ratio 0.68% 0.06%

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 1-5 Year Investment Grade Corporate Bond ETF (IGSB) is a Short-Term Bond fund that is issued by iShares. It currently has 26.63B total assets under management and has yielded an average annual return of 2.51% over the past 10 years. The fund has a dividend yield of 2.02% with an expense ratio of 0.06%.

EEM’s dividend yield is 0.54% lower than that of IGSB (1.48% vs. 2.02%). Also, EEM yielded on average 2.97% more per year over the past decade (5.47% vs. 2.51%). The expense ratio of EEM is 0.62 percentage points higher than IGSB’s (0.68% vs. 0.06%).

Fund Composition

Holdings

EEM - 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%.

IGSB - Holdings

IGSB Bond Sectors Weight
BBB 50.48%
A 40.04%
AA 7.46%
AAA 2.21%
BB 0.09%
Below B 0.0%
B 0.0%
US Government 0.0%
Others -0.28%

IGSB’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and BB at 50.48%, 40.04%, 7.46%, 2.21%, and 0.09%. The fund is less weighted towards Below B (0.0%), B (0.0%), and US Government (0.0%) rated bonds.

Risk Analysis

EEM IGSB
Mean Return 0.38 0.19
R-squared 83.5 26.13
Std. Deviation 17.79 2
Alpha -2.33 0.69
Beta 1.08 0.34
Sharpe Ratio 0.22 0.82
Treynor Ratio 2.22 4.82

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

The iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB) has a R-squared of 26.13 with a Beta of 0.34 and a Standard Deviation of 2. Its Treynor Ratio is 4.82 while IGSB’s Mean Return is 0.19. Furthermore, the fund has a Sharpe Ratio of 0.82 and a Alpha of 0.69.

EEM’s Mean Return is 0.19 points higher than that of IGSB and its R-squared is 57.37 points higher. With a Standard Deviation of 17.79, EEM is slightly more volatile than IGSB. The Alpha and Beta of EEM are 3.02 points lower and 0.74 points higher than IGSB’s Alpha and Beta.

Performance

Annual Returns

EEM vs. IGSB - Annual Returns

Year EEM IGSB
2020 17.56% 5.26%
2019 17.67% 7.01%
2018 -14.98% 1.34%
2017 36.42% 1.41%
2016 10.51% 1.77%
2015 -15.41% 0.7%
2014 -2.82% 0.74%
2013 -3.14% 1.03%
2012 17.32% 3.28%
2011 -18.87% 1.34%
2010 15.93% 3.69%

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 IGSB, returning 7.01% on an annual basis. The poorest year for IGSB in the last ten years was 2015, with a yield of 0.7%. Most years the iShares 1-5 Year Investment Grade Corporate Bond ETF has given investors modest returns, such as in 2011, 2017, and 2016, when gains were 1.34%, 1.41%, and 1.77% respectively.

Portfolio Growth

EEM vs. IGSB - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EEM $10,000 $15,578 5.47%
IGSB $10,000 $13,103 2.51%

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 IGSB, the end total would have been $13,103. This equates to a $3,103 profit over 11 years and a compound annual growth rate (CAGR) of 2.51%.

EEM’s CAGR is 2.97 percentage points higher than that of IGSB and as a result, would have yielded $2,475 more on a $10,000 investment. Thus, EEM outperformed IGSB by 2.97% annually.


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