The iShares MSCI Emerging Markets ETF (EEM) and the Schwab U.S. TIPS ETF (SCHP) are both among the Top 100 ETFs. EEM is a iShares Diversified Emerging Mkts fund and SCHP is a Schwab ETFs Inflation-Protected Bond fund. So, what’s the difference between EEM and SCHP? And which fund is better?
The expense ratio of EEM is 0.63 percentage points higher than SCHP’s (0.68% vs. 0.05%). EEM also has a high exposure to the technology sector while SCHP is mostly comprised of AAA bonds. Overall, EEM has provided higher returns than SCHP over the past ten years.
In this article, we’ll compare EEM vs. SCHP. We’ll look at performance and holdings, as well as at their industry exposure and risk metrics. Moreover, I’ll also discuss EEM’s and SCHP’s fund composition, portfolio growth, and annual returns and examine how these affect their overall returns.
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Summary
| EEM | SCHP | |
| Name | iShares MSCI Emerging Markets ETF | Schwab U.S. TIPS ETF |
| Category | Diversified Emerging Mkts | Inflation-Protected Bond |
| Issuer | iShares | Schwab ETFs |
| AUM | 30.33B | 18.41B |
| Avg. Return | 5.47% | 3.92% |
| Div. Yield | 1.48% | 1.97% |
| Expense Ratio | 0.68% | 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 Schwab U.S. TIPS ETF (SCHP) is a Inflation-Protected Bond fund that is issued by Schwab ETFs. It currently has 18.41B total assets under management and has yielded an average annual return of 3.92% over the past 10 years. The fund has a dividend yield of 1.97% with an expense ratio of 0.05%.
EEM’s dividend yield is 0.49% lower than that of SCHP (1.48% vs. 1.97%). Also, EEM yielded on average 1.56% more per year over the past decade (5.47% vs. 3.92%). The expense ratio of EEM is 0.63 percentage points higher than SCHP’s (0.68% vs. 0.05%).
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Fund Composition
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%.
| SCHP Bond Sectors | Weight |
| AAA | 100.0% |
| Others | 0.0% |
| Below B | 0.0% |
| B | 0.0% |
| BB | 0.0% |
| BBB | 0.0% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
SCHP’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.
Risk Analysis
| EEM | SCHP | |
| Mean Return | 0.38 | 0.28 |
| R-squared | 83.5 | 66.16 |
| Std. Deviation | 17.79 | 4.32 |
| Alpha | -2.33 | -0.5 |
| Beta | 1.08 | 1.17 |
| Sharpe Ratio | 0.22 | 0.64 |
| Treynor Ratio | 2.22 | 2.31 |
The iShares MSCI Emerging Markets ETF (EEM) has a Standard Deviation of 17.79 with a Beta of 1.08 and a Alpha of -2.33. Its R-squared is 83.5 while EEM’s Mean Return is 0.38. Furthermore, the fund has a Treynor Ratio of 2.22 and a Sharpe Ratio of 0.22.
The Schwab U.S. TIPS ETF (SCHP) has a Alpha of -0.5 with a R-squared of 66.16 and a Standard Deviation of 4.32. Its Treynor Ratio is 2.31 while SCHP’s Mean Return is 0.28. Furthermore, the fund has a Beta of 1.17 and a Sharpe Ratio of 0.64.
EEM’s Mean Return is 0.10 points higher than that of SCHP and its R-squared is 17.34 points higher. With a Standard Deviation of 17.79, EEM is slightly more volatile than SCHP. The Alpha and Beta of EEM are 1.83 points lower and 0.09 points lower than SCHP’s Alpha and Beta.
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Performance
Annual Returns
| Year | EEM | SCHP |
| 2020 | 17.56% | 10.94% |
| 2019 | 17.67% | 8.36% |
| 2018 | -14.98% | -1.31% |
| 2017 | 36.42% | 2.95% |
| 2016 | 10.51% | 4.6% |
| 2015 | -15.41% | -1.5% |
| 2014 | -2.82% | 3.56% |
| 2013 | -3.14% | -8.66% |
| 2012 | 17.32% | 6.83% |
| 2011 | -18.87% | 13.38% |
| 2010 | 15.93% | 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 2011 was the strongest year for SCHP, returning 13.38% on an annual basis. The poorest year for SCHP in the last ten years was 2013, with a yield of -8.66%. Most years the Schwab U.S. TIPS ETF has given investors modest returns, such as in 2017, 2014, and 2016, when gains were 2.95%, 3.56%, and 4.6% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| EEM | $10,000 | $13,437 | 5.47% |
| SCHP | $10,000 | $14,418 | 3.92% |
A $10,000 investment in EEM would have resulted in a final balance of $13,437. This is a profit of $3,437 over 10 years and amounts to a compound annual growth rate (CAGR) of 5.47%.
With a $10,000 investment in SCHP, the end total would have been $14,418. This equates to a $4,418 profit over 10 years and a compound annual growth rate (CAGR) of 3.92%.
EEM’s CAGR is 1.56 percentage points higher than that of SCHP and as a result, would have yielded $981 less on a $10,000 investment. Thus, EEM outperformed SCHP by 1.56% annually.
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