EEM vs. PFF: What’s The Difference?

The iShares MSCI Emerging Markets ETF (EEM) and the iShares Preferred and Income Securities ETF (PFF) are both among the Top 100 ETFs. EEM is a iShares Diversified Emerging Mkts fund and PFF is a iShares Preferred Stock fund. So, what’s the difference between EEM and PFF? And which fund is better?

The expense ratio of EEM is 0.22 percentage points higher than PFF’s (0.68% vs. 0.46%). EEM also has a higher exposure to the technology sector and a higher standard deviation. Overall, EEM has provided lower returns than PFF over the past ten years.

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

Summary

EEM PFF
Name iShares MSCI Emerging Markets ETF iShares Preferred and Income Securities ETF
Category Diversified Emerging Mkts Preferred Stock
Issuer iShares iShares
AUM 30.33B 19.8B
Avg. Return 5.47% 6.90%
Div. Yield 1.48% 4.47%
Expense Ratio 0.68% 0.46%

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 Preferred and Income Securities ETF (PFF) is a Preferred Stock fund that is issued by iShares. It currently has 19.8B total assets under management and has yielded an average annual return of 6.90% over the past 10 years. The fund has a dividend yield of 4.47% with an expense ratio of 0.46%.

EEM’s dividend yield is 2.99% lower than that of PFF (1.48% vs. 4.47%). Also, EEM yielded on average 1.43% less per year over the past decade (5.47% vs. 6.90%). The expense ratio of EEM is 0.22 percentage points higher than PFF’s (0.68% vs. 0.46%).

Fund Composition

Industry Exposure

EEM vs. PFF - Industry Exposure

EEM PFF
Technology 21.36% 0.0%
Industrials 4.61% 10.27%
Energy 5.17% 0.0%
Communication Services 11.76% 0.0%
Utilities 1.99% 81.81%
Healthcare 5.06% 3.54%
Consumer Defensive 5.45% 0.0%
Real Estate 1.98% 0.65%
Financial Services 18.39% 0.0%
Consumer Cyclical 15.16% 0.0%
Basic Materials 9.07% 3.74%

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 iShares Preferred and Income Securities ETF (PFF) has the most exposure to the Utilities sector at 81.81%. This is followed by Industrials and Basic Materials at 10.27% and 3.74% respectively. Financial Services (0.0%), Consumer Defensive (0.0%), and Communication Services (0.0%) only make up 0.00% of the fund’s total assets.

PFF’s mid-section with moderate exposure is comprised of Energy, Technology, Real Estate, Healthcare, and Basic Materials stocks at 0.0%, 0.0%, 0.65%, 3.54%, and 3.74%.

EEM is 21.36% more exposed to the Technology sector than PFF (21.36% vs 0.0%). EEM’s exposure to Financial Services and Consumer Cyclical stocks is 18.39% higher and 15.16% higher respectively (18.39% vs. 0.0% and 15.16% vs. 0.0%). In total, Utilities, Industrials, and Healthcare also make up 83.96% less of the fund’s holdings compared to PFF (11.66% vs. 95.62%).

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%.

PFF - Holdings

PFF Holdings Weight
Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A 2.54%
BlackRock Cash Funds Treasury SL Agency 2.3%
Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L- 1.79%
Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L- 1.49%
ArcelorMittal S.A. 5.5% 1.36%
Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A 1.35%
Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B 1.14%
NextEra Energy Inc Unit 1.12%
Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 1.08%
Avantor Inc Ser A 0.99%

PFF’s Top Holdings are Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A, BlackRock Cash Funds Treasury SL Agency, Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L-, Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L-, and ArcelorMittal S.A. 5.5% at 2.54%, 2.3%, 1.79%, 1.49%, and 1.36%.

Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A (1.35%), Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B (1.14%), and NextEra Energy Inc Unit (1.12%) have a slightly smaller but still significant weight. Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 and Avantor Inc Ser A are also represented in the PFF’s holdings at 1.08% and 0.99%.

Risk Analysis

EEM PFF
Mean Return 0.38 0.52
R-squared 83.5 9.39
Std. Deviation 17.79 7.87
Alpha -2.33 3.45
Beta 1.08 0.81
Sharpe Ratio 0.22 0.72
Treynor Ratio 2.22 6.79

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

The iShares Preferred and Income Securities ETF (PFF) has a Beta of 0.81 with a Standard Deviation of 7.87 and a Sharpe Ratio of 0.72. Its R-squared is 9.39 while PFF’s Mean Return is 0.52. Furthermore, the fund has a Treynor Ratio of 6.79 and a Alpha of 3.45.

EEM’s Mean Return is 0.14 points lower than that of PFF and its R-squared is 74.11 points higher. With a Standard Deviation of 17.79, EEM is slightly more volatile than PFF. The Alpha and Beta of EEM are 5.78 points lower and 0.27 points higher than PFF’s Alpha and Beta.

Performance

Annual Returns

EEM vs. PFF - Annual Returns

Year EEM PFF
2020 17.56% 7.94%
2019 17.67% 15.62%
2018 -14.98% -4.77%
2017 36.42% 8.33%
2016 10.51% 1.26%
2015 -15.41% 4.62%
2014 -2.82% 13.45%
2013 -3.14% -0.59%
2012 17.32% 18.25%
2011 -18.87% -2.2%
2010 15.93% 13.96%

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 2012 was the strongest year for PFF, returning 18.25% on an annual basis. The poorest year for PFF in the last ten years was 2018, with a yield of -4.77%. Most years the iShares Preferred and Income Securities ETF has given investors modest returns, such as in 2015, 2020, and 2017, when gains were 4.62%, 7.94%, and 8.33% respectively.

Portfolio Growth

EEM vs. PFF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EEM $10,000 $15,578 5.47%
PFF $10,000 $20,272 6.90%

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 PFF, the end total would have been $20,272. This equates to a $10,272 profit over 11 years and a compound annual growth rate (CAGR) of 6.90%.

EEM’s CAGR is 1.43 percentage points lower than that of PFF and as a result, would have yielded $4,694 less on a $10,000 investment. Thus, EEM performed worse than PFF by 1.43% annually.


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