EEM vs. VMBS: What’s The Difference?

The iShares MSCI Emerging Markets ETF (EEM) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. EEM is a iShares Diversified Emerging Mkts fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between EEM and VMBS? And which fund is better?

The expense ratio of EEM is 0.63 percentage points higher than VMBS’s (0.68% vs. 0.05%). EEM also has a high exposure to the technology sector while VMBS is mostly comprised of AAA bonds. Overall, EEM has provided higher returns than VMBS over the past ten years.

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

Summary

EEM VMBS
Name iShares MSCI Emerging Markets ETF Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Diversified Emerging Mkts Intermediate Government
Issuer iShares Vanguard
AUM 30.33B 16.61B
Avg. Return 5.47% 2.89%
Div. Yield 1.48% 1.23%
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 Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) is a Intermediate Government fund that is issued by Vanguard. It currently has 16.61B total assets under management and has yielded an average annual return of 2.89% over the past 10 years. The fund has a dividend yield of 1.23% with an expense ratio of 0.05%.

EEM’s dividend yield is 0.25% higher than that of VMBS (1.48% vs. 1.23%). Also, EEM yielded on average 2.58% more per year over the past decade (5.47% vs. 2.89%). The expense ratio of EEM is 0.63 percentage points higher than VMBS’s (0.68% vs. 0.05%).

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%.

VMBS - Holdings

VMBS Bond Sectors Weight
AAA 100.01%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%
Others -0.01%

VMBS’s Top Bond Sectors are ratings of AAA, Below B, B, BB, and BBB at 100.01%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.

Risk Analysis

EEM VMBS
Mean Return 0.38 0.21
R-squared 83.5 65.78
Std. Deviation 17.79 2.02
Alpha -2.33 0.37
Beta 1.08 0.54
Sharpe Ratio 0.22 0.94
Treynor Ratio 2.22 3.47

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

The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Treynor Ratio of 3.47 with a Standard Deviation of 2.02 and a Beta of 0.54. Its Alpha is 0.37 while VMBS’s R-squared is 65.78. Furthermore, the fund has a Mean Return of 0.21 and a Sharpe Ratio of 0.94.

EEM’s Mean Return is 0.17 points higher than that of VMBS and its R-squared is 17.72 points higher. With a Standard Deviation of 17.79, EEM is slightly more volatile than VMBS. The Alpha and Beta of EEM are 2.70 points lower and 0.54 points higher than VMBS’s Alpha and Beta.

Performance

Annual Returns

EEM vs. VMBS - Annual Returns

Year EEM VMBS
2020 17.56% 3.77%
2019 17.67% 6.17%
2018 -14.98% 0.87%
2017 36.42% 2.37%
2016 10.51% 1.43%
2015 -15.41% 1.43%
2014 -2.82% 5.81%
2013 -3.14% -1.28%
2012 17.32% 2.47%
2011 -18.87% 5.89%
2010 15.93% 5.24%

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 VMBS, returning 6.17% on an annual basis. The poorest year for VMBS in the last ten years was 2013, with a yield of -1.28%. Most years the Vanguard Mortgage-Backed Securities Index Fund ETF Shares has given investors modest returns, such as in 2017, 2012, and 2020, when gains were 2.37%, 2.47%, and 3.77% respectively.

Portfolio Growth

EEM vs. VMBS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EEM $10,000 $13,437 5.47%
VMBS $10,000 $13,265 2.89%

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 VMBS, the end total would have been $13,265. This equates to a $3,265 profit over 10 years and a compound annual growth rate (CAGR) of 2.89%.

EEM’s CAGR is 2.58 percentage points higher than that of VMBS and as a result, would have yielded $172 more on a $10,000 investment. Thus, EEM outperformed VMBS by 2.58% annually.


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