EEM vs. VTIP: What’s The Difference?

The iShares MSCI Emerging Markets ETF (EEM) and the Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP) are both among the Top 100 ETFs. EEM is a iShares Diversified Emerging Mkts fund and VTIP is a Vanguard Inflation-Protected Bond fund. So, what’s the difference between EEM and VTIP? And which fund is better?

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

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

Summary

EEM VTIP
Name iShares MSCI Emerging Markets ETF Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares
Category Diversified Emerging Mkts Inflation-Protected Bond
Issuer iShares Vanguard
AUM 30.33B 50.67B
Avg. Return 5.47% 1.79%
Div. Yield 1.48% 1.35%
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 Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP) is a Inflation-Protected Bond fund that is issued by Vanguard. It currently has 50.67B total assets under management and has yielded an average annual return of 1.79% over the past 10 years. The fund has a dividend yield of 1.35% with an expense ratio of 0.05%.

EEM’s dividend yield is 0.13% higher than that of VTIP (1.48% vs. 1.35%). Also, EEM yielded on average 3.68% more per year over the past decade (5.47% vs. 1.79%). The expense ratio of EEM is 0.63 percentage points higher than VTIP’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%.

VTIP - Holdings

VTIP Bond Sectors Weight
AAA 99.87%
Others 0.13%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

VTIP’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.87%, 0.13%, 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 VTIP
Mean Return 0.38 0
R-squared 83.5 0
Std. Deviation 17.79 0
Alpha -2.33 0
Beta 1.08 0
Sharpe Ratio 0.22 0
Treynor Ratio 2.22 0

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

The Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP) has a Beta of 0 with a Standard Deviation of 0 and a Mean Return of 0. Its Alpha is 0 while VTIP’s Treynor Ratio is 0. Furthermore, the fund has a R-squared of 0 and a Sharpe Ratio of 0.

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

Performance

Annual Returns

EEM vs. VTIP - Annual Returns

Year EEM VTIP
2020 17.56% 4.97%
2019 17.67% 4.83%
2018 -14.98% 0.54%
2017 36.42% 0.82%
2016 10.51% 2.71%
2015 -15.41% -0.15%
2014 -2.82% -1.17%
2013 -3.14% -1.55%
2012 17.32% 0.0%
2011 -18.87% 0.0%
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 2020 was the strongest year for VTIP, returning 4.97% on an annual basis. The poorest year for VTIP in the last ten years was 2013, with a yield of -1.55%. Most years the Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares has given investors modest returns, such as in 2011, 2010, and 2018, when gains were 0.0%, 0.0%, and 0.54% respectively.

Portfolio Growth

EEM vs. VTIP - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EEM $10,000 $14,575 5.47%
VTIP $10,000 $11,305 1.79%

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 VTIP, the end total would have been $11,305. This equates to a $1,305 profit over 7 years and a compound annual growth rate (CAGR) of 1.79%.

EEM’s CAGR is 3.68 percentage points higher than that of VTIP and as a result, would have yielded $3,270 more on a $10,000 investment. Thus, EEM outperformed VTIP by 3.68% annually.


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