EMB vs. VMBS: What’s The Difference?

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

The expense ratio of EMB is 0.34 percentage points higher than VMBS’s (0.39% vs. 0.05%). EMB is mostly comprised of BBB bonds and VMBS has a high exposure to AAA bond. Overall, EMB has provided higher returns than VMBS over the past 10 years.

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

Summary

EMB VMBS
Name iShares J.P. Morgan USD Emerging Markets Bond ETF Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Emerging Markets Bond Intermediate Government
Issuer iShares Vanguard
AUM 19.76B 16.61B
Avg. Return 6.43% 2.89%
Div. Yield 3.85% 1.23%
Expense Ratio 0.39% 0.05%

The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) is a Emerging Markets Bond fund that is issued by iShares. It currently has 19.76B total assets under management and has yielded an average annual return of 6.43% over the past 10 years. The fund has a dividend yield of 3.85% with an expense ratio of 0.39%.

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%.

EMB’s dividend yield is 2.62% higher than that of VMBS (3.85% vs. 1.23%). Also, EMB yielded on average 3.54% more per year over the past decade (6.43% vs. 2.89%). The expense ratio of EMB is 0.34 percentage points higher than VMBS’s (0.39% vs. 0.05%).

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Fund Composition

Holdings

EMB - Holdings

EMB Bond Sectors Weight
BBB 33.79%
B 21.97%
BB 16.92%
A 13.67%
AA 7.97%
Below B 4.49%
Others 1.11%
AAA 0.09%
US Government 0.0%

EMB’s Top Bond Sectors are ratings of BBB, B, BB, A, and AA at 33.79%, 21.97%, 16.92%, 13.67%, and 7.97%. The fund is less weighted towards Below B (4.49%), Others (1.11%), and AAA (0.09%) rated bonds.

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.

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Risk Analysis

EMB VMBS
Mean Return 0.44 0.21
R-squared 23.34 65.78
Std. Deviation 8.44 2.02
Alpha 0.89 0.37
Beta 1.36 0.54
Sharpe Ratio 0.55 0.94
Treynor Ratio 3.24 3.47

The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) has a Alpha of 0.89 with a R-squared of 23.34 and a Mean Return of 0.44. Its Treynor Ratio is 3.24 while EMB’s Standard Deviation is 8.44. Furthermore, the fund has a Sharpe Ratio of 0.55 and a Beta of 1.36.

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

EMB’s Mean Return is 0.23 points higher than that of VMBS and its R-squared is 42.44 points lower. With a Standard Deviation of 8.44, EMB is slightly more volatile than VMBS. The Alpha and Beta of EMB are 0.52 points higher and 0.82 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

EMB vs. VMBS - Annual Returns

Year EMB VMBS
2020 5.48% 3.77%
2019 15.57% 6.17%
2018 -5.67% 0.87%
2017 9.98% 2.37%
2016 9.41% 1.43%
2015 0.43% 1.43%
2014 6.69% 5.81%
2013 -7.42% -1.28%
2012 17.64% 2.47%
2011 7.2% 5.89%
2010 11.47% 5.24%

EMB had its best year in 2012 with an annual return of 17.64%. EMB’s worst year over the past decade yielded -7.42% and occurred in 2013. In most years the iShares J.P. Morgan USD Emerging Markets Bond ETF provided moderate returns such as in 2014, 2011, and 2016 where annual returns amounted to 6.69%, 7.2%, and 9.41% 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

EMB vs. VMBS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EMB $10,000 $17,309 6.43%
VMBS $10,000 $13,265 2.89%

A $10,000 investment in EMB would have resulted in a final balance of $17,309. This is a profit of $7,309 over 10 years and amounts to a compound annual growth rate (CAGR) of 6.43%.

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%.

EMB’s CAGR is 3.54 percentage points higher than that of VMBS and as a result, would have yielded $4,044 more on a $10,000 investment. Thus, EMB outperformed VMBS by 3.54% annually.


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