The iShares MSCI Emerging Markets ETF (EEM) and the Vanguard FTSE Europe Index Fund ETF Shares (VGK) are both among the Top 100 ETFs. EEM is a iShares Diversified Emerging Mkts fund and VGK is a Vanguard Europe Stock fund. So, what’s the difference between EEM and VGK? And which fund is better?
The expense ratio of EEM is 0.60 percentage points higher than VGK’s (0.68% vs. 0.08%). EEM also has a higher exposure to the technology sector and a higher standard deviation. Overall, EEM has provided lower returns than VGK over the past ten years.
In this article, we’ll compare EEM vs. VGK. We’ll look at portfolio growth and fund composition, as well as at their holdings and risk metrics. Moreover, I’ll also discuss EEM’s and VGK’s annual returns, industry exposure, and performance and examine how these affect their overall returns.
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Summary
| EEM | VGK | |
| Name | iShares MSCI Emerging Markets ETF | Vanguard FTSE Europe Index Fund ETF Shares |
| Category | Diversified Emerging Mkts | Europe Stock |
| Issuer | iShares | Vanguard |
| AUM | 30.33B | 25.7B |
| Avg. Return | 5.47% | 6.68% |
| Div. Yield | 1.48% | 2.52% |
| Expense Ratio | 0.68% | 0.08% |
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 Vanguard FTSE Europe Index Fund ETF Shares (VGK) is a Europe Stock fund that is issued by Vanguard. It currently has 25.7B total assets under management and has yielded an average annual return of 6.68% over the past 10 years. The fund has a dividend yield of 2.52% with an expense ratio of 0.08%.
EEM’s dividend yield is 1.04% lower than that of VGK (1.48% vs. 2.52%). Also, EEM yielded on average 1.21% less per year over the past decade (5.47% vs. 6.68%). The expense ratio of EEM is 0.60 percentage points higher than VGK’s (0.68% vs. 0.08%).
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Fund Composition
Industry Exposure
| EEM | VGK | |
| Technology | 21.36% | 8.3% |
| Industrials | 4.61% | 15.58% |
| Energy | 5.17% | 4.3% |
| Communication Services | 11.76% | 5.09% |
| Utilities | 1.99% | 3.89% |
| Healthcare | 5.06% | 13.76% |
| Consumer Defensive | 5.45% | 11.39% |
| Real Estate | 1.98% | 2.57% |
| Financial Services | 18.39% | 15.85% |
| Consumer Cyclical | 15.16% | 11.6% |
| Basic Materials | 9.07% | 7.67% |
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 Vanguard FTSE Europe Index Fund ETF Shares (VGK) has the most exposure to the Financial Services sector at 15.85%. This is followed by Industrials and Healthcare at 15.58% and 13.76% respectively. Utilities (3.89%), Energy (4.3%), and Communication Services (5.09%) only make up 13.28% of the fund’s total assets.
VGK’s mid-section with moderate exposure is comprised of Basic Materials, Technology, Consumer Defensive, Consumer Cyclical, and Healthcare stocks at 7.67%, 8.3%, 11.39%, 11.6%, and 13.76%.
EEM is 13.06% more exposed to the Technology sector than VGK (21.36% vs 8.3%). EEM’s exposure to Financial Services and Consumer Cyclical stocks is 2.54% higher and 3.56% higher respectively (18.39% vs. 15.85% and 15.16% vs. 11.6%). In total, Utilities, Industrials, and Healthcare also make up 21.57% less of the fund’s holdings compared to VGK (11.66% vs. 33.23%).
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%.
| VGK Holdings | Weight |
| Nestle SA | 2.82% |
| ASML Holding NV | 2.2% |
| Roche Holding AG | 2.13% |
| LVMH Moet Hennessy Louis Vuitton SE | 1.58% |
| Novartis AG | 1.55% |
| AstraZeneca PLC | 1.27% |
| SAP SE | 1.25% |
| Unilever PLC | 1.23% |
| Novo Nordisk A/S B | 1.09% |
| Siemens AG | 0.96% |
VGK’s Top Holdings are Nestle SA, ASML Holding NV, Roche Holding AG, LVMH Moet Hennessy Louis Vuitton SE, and Novartis AG at 2.82%, 2.2%, 2.13%, 1.58%, and 1.55%.
AstraZeneca PLC (1.27%), SAP SE (1.25%), and Unilever PLC (1.23%) have a slightly smaller but still significant weight. Novo Nordisk A/S B and Siemens AG are also represented in the VGK’s holdings at 1.09% and 0.96%.
Risk Analysis
| EEM | VGK | |
| Mean Return | 0.38 | 0.61 |
| R-squared | 83.5 | 92.76 |
| Std. Deviation | 17.79 | 16.65 |
| Alpha | -2.33 | 0.45 |
| Beta | 1.08 | 1.06 |
| Sharpe Ratio | 0.22 | 0.4 |
| Treynor Ratio | 2.22 | 5.12 |
The iShares MSCI Emerging Markets ETF (EEM) has a Mean Return of 0.38 with a Beta of 1.08 and a Sharpe Ratio of 0.22. Its Alpha is -2.33 while EEM’s Standard Deviation is 17.79. Furthermore, the fund has a Treynor Ratio of 2.22 and a R-squared of 83.5.
The Vanguard FTSE Europe Index Fund ETF Shares (VGK) has a Mean Return of 0.61 with a Standard Deviation of 16.65 and a Treynor Ratio of 5.12. Its Sharpe Ratio is 0.4 while VGK’s Alpha is 0.45. Furthermore, the fund has a R-squared of 92.76 and a Beta of 1.06.
EEM’s Mean Return is 0.23 points lower than that of VGK and its R-squared is 9.26 points lower. With a Standard Deviation of 17.79, EEM is slightly more volatile than VGK. The Alpha and Beta of EEM are 2.78 points lower and 0.02 points higher than VGK’s Alpha and Beta.
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Performance
Annual Returns
| Year | EEM | VGK |
| 2020 | 17.56% | 6.5% |
| 2019 | 17.67% | 24.26% |
| 2018 | -14.98% | -14.79% |
| 2017 | 36.42% | 27.06% |
| 2016 | 10.51% | -0.59% |
| 2015 | -15.41% | -1.87% |
| 2014 | -2.82% | -6.56% |
| 2013 | -3.14% | 24.93% |
| 2012 | 17.32% | 21.01% |
| 2011 | -18.87% | -11.49% |
| 2010 | 15.93% | 5.01% |
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 2017 was the strongest year for VGK, returning 27.06% on an annual basis. The poorest year for VGK in the last ten years was 2018, with a yield of -14.79%. Most years the Vanguard FTSE Europe Index Fund ETF Shares has given investors modest returns, such as in 2016, 2010, and 2020, when gains were -0.59%, 5.01%, and 6.5% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| EEM | $10,000 | $15,578 | 5.47% |
| VGK | $10,000 | $18,350 | 6.68% |
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 VGK, the end total would have been $18,350. This equates to a $8,350 profit over 11 years and a compound annual growth rate (CAGR) of 6.68%.
EEM’s CAGR is 1.21 percentage points lower than that of VGK and as a result, would have yielded $2,772 less on a $10,000 investment. Thus, EEM performed worse than VGK by 1.21% annually.
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