EEM vs. SHY: What’s The Difference?

The iShares MSCI Emerging Markets ETF (EEM) and the iShares 1-3 Year Treasury Bond ETF (SHY) are both among the Top 100 ETFs. EEM is a iShares Diversified Emerging Mkts fund and SHY is a iShares Short Government fund. So, what’s the difference between EEM and SHY? And which fund is better?

The expense ratio of EEM is 0.53 percentage points higher than SHY’s (0.68% vs. 0.15%). EEM also has a high exposure to the technology sector while SHY is mostly comprised of AAA bonds. Overall, EEM has provided higher returns than SHY over the past ten years.

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

Summary

EEM SHY
Name iShares MSCI Emerging Markets ETF iShares 1-3 Year Treasury Bond ETF
Category Diversified Emerging Mkts Short Government
Issuer iShares iShares
AUM 30.33B 19.51B
Avg. Return 5.47% 1.27%
Div. Yield 1.48% 0.46%
Expense Ratio 0.68% 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 1-3 Year Treasury Bond ETF (SHY) is a Short Government fund that is issued by iShares. It currently has 19.51B total assets under management and has yielded an average annual return of 1.27% over the past 10 years. The fund has a dividend yield of 0.46% with an expense ratio of 0.15%.

EEM’s dividend yield is 1.02% higher than that of SHY (1.48% vs. 0.46%). Also, EEM yielded on average 4.20% more per year over the past decade (5.47% vs. 1.27%). The expense ratio of EEM is 0.53 percentage points higher than SHY’s (0.68% vs. 0.15%).

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%.

SHY - Holdings

SHY Bond Sectors Weight
AAA 99.67%
Others 0.33%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

SHY’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.67%, 0.33%, 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 SHY
Mean Return 0.38 0.09
R-squared 83.5 39.11
Std. Deviation 17.79 0.89
Alpha -2.33 -0.03
Beta 1.08 0.18
Sharpe Ratio 0.22 0.54
Treynor Ratio 2.22 2.6

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

The iShares 1-3 Year Treasury Bond ETF (SHY) has a Treynor Ratio of 2.6 with a Mean Return of 0.09 and a Sharpe Ratio of 0.54. Its R-squared is 39.11 while SHY’s Standard Deviation is 0.89. Furthermore, the fund has a Alpha of -0.03 and a Beta of 0.18.

EEM’s Mean Return is 0.29 points higher than that of SHY and its R-squared is 44.39 points higher. With a Standard Deviation of 17.79, EEM is slightly more volatile than SHY. The Alpha and Beta of EEM are 2.30 points lower and 0.90 points higher than SHY’s Alpha and Beta.

Performance

Annual Returns

EEM vs. SHY - Annual Returns

Year EEM SHY
2020 17.56% 3.01%
2019 17.67% 3.42%
2018 -14.98% 1.45%
2017 36.42% 0.27%
2016 10.51% 0.75%
2015 -15.41% 0.43%
2014 -2.82% 0.48%
2013 -3.14% 0.23%
2012 17.32% 0.31%
2011 -18.87% 1.43%
2010 15.93% 2.23%

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 SHY, returning 3.42% on an annual basis. The poorest year for SHY in the last ten years was 2013, with a yield of 0.23%. Most years the iShares 1-3 Year Treasury Bond ETF has given investors modest returns, such as in 2014, 2016, and 2011, when gains were 0.48%, 0.75%, and 1.43% respectively.

Portfolio Growth

EEM vs. SHY - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EEM $10,000 $15,578 5.47%
SHY $10,000 $11,486 1.27%

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 SHY, the end total would have been $11,486. This equates to a $1,486 profit over 11 years and a compound annual growth rate (CAGR) of 1.27%.

EEM’s CAGR is 4.20 percentage points higher than that of SHY and as a result, would have yielded $4,092 more on a $10,000 investment. Thus, EEM outperformed SHY by 4.20% annually.


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