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EEM vs. QUAL: What’s The Difference?

The iShares MSCI Emerging Markets ETF (EEM) and the iShares MSCI USA Quality Factor ETF (QUAL) are both among the Top 100 ETFs. EEM is a iShares Diversified Emerging Mkts fund and QUAL is a iShares Large Blend fund. So, what’s the difference between EEM and QUAL? And which fund is better?

The expense ratio of EEM is 0.53 percentage points higher than QUAL’s (0.68% vs. 0.15%). EEM also has a lower exposure to the technology sector and a higher standard deviation. Overall, EEM has provided lower returns than QUAL over the past ten years.

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

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Summary

EEMQUAL
NameiShares MSCI Emerging Markets ETFiShares MSCI USA Quality Factor ETF
CategoryDiversified Emerging MktsLarge Blend
IssueriSharesiShares
AUM30.33B23.93B
Avg. Return5.47%13.42%
Div. Yield1.48%1.29%
Expense Ratio0.68%0.15%

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 MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.

EEM’s dividend yield is 0.19% higher than that of QUAL (1.48% vs. 1.29%). Also, EEM yielded on average 7.95% less per year over the past decade (5.47% vs. 13.42%). The expense ratio of EEM is 0.53 percentage points higher than QUAL’s (0.68% vs. 0.15%).

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Fund Composition

Industry Exposure

EEM vs. QUAL - Industry Exposure

EEMQUAL
Technology21.36%22.52%
Industrials4.61%9.22%
Energy5.17%2.24%
Communication Services11.76%11.44%
Utilities1.99%2.41%
Healthcare5.06%13.22%
Consumer Defensive5.45%8.57%
Real Estate1.98%2.72%
Financial Services18.39%15.87%
Consumer Cyclical15.16%9.43%
Basic Materials9.07%2.35%

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 MSCI USA Quality Factor ETF (QUAL) has the most exposure to the Technology sector at 22.52%. This is followed by Financial Services and Healthcare at 15.87% and 13.22% respectively. Basic Materials (2.35%), Utilities (2.41%), and Real Estate (2.72%) only make up 7.48% of the fund’s total assets.

QUAL’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Consumer Cyclical, Communication Services, and Healthcare stocks at 8.57%, 9.22%, 9.43%, 11.44%, and 13.22%.

EEM is 1.16% less exposed to the Technology sector than QUAL (21.36% vs 22.52%). EEM’s exposure to Financial Services and Consumer Cyclical stocks is 2.52% higher and 5.73% higher respectively (18.39% vs. 15.87% and 15.16% vs. 9.43%). In total, Utilities, Industrials, and Healthcare also make up 13.19% less of the fund’s holdings compared to QUAL (11.66% vs. 24.85%).

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%.

QUAL - Holdings

QUAL HoldingsWeight
Facebook Inc Class A4.77%
Nike Inc Class B4.05%
Microsoft Corp3.54%
Apple Inc3.52%
Johnson & Johnson2.99%
BlackRock Inc2.87%
Target Corp2.8%
Mastercard Inc Class A2.72%
NVIDIA Corp2.71%
Alphabet Inc Class A2.49%

QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.

BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.

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Risk Analysis

EEMQUAL
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 Treynor Ratio of 2.22 and a Sharpe Ratio of 0.22. Its Mean Return is 0.38 while EEM’s Standard Deviation is 17.79. Furthermore, the fund has a Beta of 1.08 and a R-squared of 83.5.

The iShares MSCI USA Quality Factor ETF (QUAL) has a R-squared of 0 with a Standard Deviation of 0 and a Treynor Ratio of 0. Its Alpha is 0 while QUAL’s Sharpe Ratio is 0. Furthermore, the fund has a Mean Return of 0 and a Beta of 0.

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

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Performance

Annual Returns

EEM vs. QUAL - Annual Returns

YearEEMQUAL
202017.56%16.96%
201917.67%34.14%
2018-14.98%-5.77%
201736.42%22.26%
201610.51%9.18%
2015-15.41%5.56%
2014-2.82%11.62%
2013-3.14%0.0%
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 2019 was the strongest year for QUAL, returning 34.14% on an annual basis. The poorest year for QUAL in the last ten years was 2018, with a yield of -5.77%. Most years the iShares MSCI USA Quality Factor ETF has given investors modest returns, such as in 2010, 2015, and 2016, when gains were 0.0%, 5.56%, and 9.18% respectively.

Portfolio Growth

EEM vs. QUAL - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
EEM$10,000$14,5755.47%
QUAL$10,000$23,25113.42%

A $10,000 investment in EEM would have resulted in a final balance of $14,575. This is a profit of $4,575 over 7 years and amounts to a compound annual growth rate (CAGR) of 5.47%.

With a $10,000 investment in QUAL, the end total would have been $23,251. This equates to a $13,251 profit over 7 years and a compound annual growth rate (CAGR) of 13.42%.

EEM’s CAGR is 7.95 percentage points lower than that of QUAL and as a result, would have yielded $8,676 less on a $10,000 investment. Thus, EEM performed worse than QUAL by 7.95% annually.


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