IWM vs. EEM: What’s The Difference?

The iShares Russell 2000 ETF (IWM) and the iShares MSCI Emerging Markets ETF (EEM) are both among the Top 100 ETFs. IWM is a iShares Small Blend fund and EEM is a iShares Diversified Emerging Mkts fund. So, what’s the difference between IWM and EEM? And which fund is better?

The expense ratio of IWM is 0.49 percentage points lower than EEM’s (0.19% vs. 0.68%). IWM also has a higher exposure to the healthcare sector and a higher standard deviation. Overall, IWM has provided higher returns than EEM over the past ten years.

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

Summary

IWM EEM
Name iShares Russell 2000 ETF iShares MSCI Emerging Markets ETF
Category Small Blend Diversified Emerging Mkts
Issuer iShares iShares
AUM 66.48B 30.33B
Avg. Return 13.52% 5.47%
Div. Yield 0.86% 1.48%
Expense Ratio 0.19% 0.68%

The iShares Russell 2000 ETF (IWM) is a Small Blend fund that is issued by iShares. It currently has 66.48B total assets under management and has yielded an average annual return of 13.52% over the past 10 years. The fund has a dividend yield of 0.86% with an expense ratio of 0.19%.

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%.

IWM’s dividend yield is 0.62% lower than that of EEM (0.86% vs. 1.48%). Also, IWM yielded on average 8.05% more per year over the past decade (13.52% vs. 5.47%). The expense ratio of IWM is 0.49 percentage points lower than EEM’s (0.19% vs. 0.68%).

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Fund Composition

Industry Exposure

IWM vs. EEM - Industry Exposure

IWM EEM
Technology 14.21% 21.36%
Industrials 14.78% 4.61%
Energy 3.74% 5.17%
Communication Services 3.79% 11.76%
Utilities 2.44% 1.99%
Healthcare 20.3% 5.06%
Consumer Defensive 3.65% 5.45%
Real Estate 8.59% 1.98%
Financial Services 13.76% 18.39%
Consumer Cyclical 10.99% 15.16%
Basic Materials 3.74% 9.07%

The iShares Russell 2000 ETF (IWM) has the most exposure to the Healthcare sector at 20.3%. This is followed by Industrials and Technology at 14.78% and 14.21% respectively. Consumer Defensive (3.65%), Basic Materials (3.74%), and Energy (3.74%) only make up 11.13% of the fund’s total assets.

IWM’s mid-section with moderate exposure is comprised of Communication Services, Real Estate, Consumer Cyclical, Financial Services, and Technology stocks at 3.79%, 8.59%, 10.99%, 13.76%, and 14.21%.

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%.

IWM is 15.24% more exposed to the Healthcare sector than EEM (20.3% vs 5.06%). IWM’s exposure to Industrials and Technology stocks is 10.17% higher and 7.15% lower respectively (14.78% vs. 4.61% and 14.21% vs. 21.36%). In total, Consumer Defensive, Basic Materials, and Energy also make up 8.56% less of the fund’s holdings compared to EEM (11.13% vs. 19.69%).

Holdings

IWM - Holdings

IWM Holdings Weight
AMC Entertainment Holdings Inc Class A 0.52%
Intellia Therapeutics Inc 0.33%
Crocs Inc 0.3%
BlackRock Cash Funds Treasury SL Agency 0.29%
Tenet Healthcare Corp 0.26%
Lattice Semiconductor Corp 0.26%
Tetra Tech Inc 0.25%
II-VI Inc 0.25%
EastGroup Properties Inc 0.24%
Arrowhead Pharmaceuticals Inc 0.24%

IWM’s Top Holdings are AMC Entertainment Holdings Inc Class A, Intellia Therapeutics Inc, Crocs Inc, BlackRock Cash Funds Treasury SL Agency, and Tenet Healthcare Corp at 0.52%, 0.33%, 0.3%, 0.29%, and 0.26%.

Lattice Semiconductor Corp (0.26%), Tetra Tech Inc (0.25%), and II-VI Inc (0.25%) have a slightly smaller but still significant weight. EastGroup Properties Inc and Arrowhead Pharmaceuticals Inc are also represented in the IWM’s holdings at 0.24% and 0.24%.

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%.

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Risk Analysis

IWM EEM
Mean Return 1.12 0.38
R-squared 77.73 83.5
Std. Deviation 18.87 17.79
Alpha -5.12 -2.33
Beta 1.23 1.08
Sharpe Ratio 0.68 0.22
Treynor Ratio 9.56 2.22

The iShares Russell 2000 ETF (IWM) has a Treynor Ratio of 9.56 with a R-squared of 77.73 and a Standard Deviation of 18.87. Its Alpha is -5.12 while IWM’s Mean Return is 1.12. Furthermore, the fund has a Sharpe Ratio of 0.68 and a Beta of 1.23.

The iShares MSCI Emerging Markets ETF (EEM) has a Alpha of -2.33 with a Standard Deviation of 17.79 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 Mean Return of 0.38 and a Sharpe Ratio of 0.22.

IWM’s Mean Return is 0.74 points higher than that of EEM and its R-squared is 5.77 points lower. With a Standard Deviation of 18.87, IWM is slightly more volatile than EEM. The Alpha and Beta of IWM are 2.79 points lower and 0.15 points higher than EEM’s Alpha and Beta.

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Performance

Annual Returns

IWM vs. EEM - Annual Returns

Year IWM EEM
2020 19.89% 17.56%
2019 25.42% 17.67%
2018 -11.02% -14.98%
2017 14.66% 36.42%
2016 21.36% 10.51%
2015 -4.33% -15.41%
2014 4.94% -2.82%
2013 38.85% -3.14%
2012 16.39% 17.32%
2011 -4.19% -18.87%
2010 26.76% 15.93%

IWM had its best year in 2013 with an annual return of 38.85%. IWM’s worst year over the past decade yielded -11.02% and occurred in 2018. In most years the iShares Russell 2000 ETF provided moderate returns such as in 2017, 2012, and 2020 where annual returns amounted to 14.66%, 16.39%, and 19.89% respectively.

The year 2017 was the strongest year for EEM, returning 36.42% on an annual basis. The poorest year for EEM in the last ten years was 2011, with a yield of -18.87%. Most years the iShares MSCI Emerging Markets ETF has given investors modest returns, such as in 2014, 2016, and 2010, when gains were -2.82%, 10.51%, and 15.93% respectively.

Portfolio Growth

IWM vs. EEM - Portfolio Growth

Fund Initial Balance Final Balance CAGR
IWM $10,000 $36,686 13.52%
EEM $10,000 $15,578 5.47%

A $10,000 investment in IWM would have resulted in a final balance of $36,686. This is a profit of $26,686 over 11 years and amounts to a compound annual growth rate (CAGR) of 13.52%.

With a $10,000 investment in EEM, the end total would have been $15,578. This equates to a $5,578 profit over 11 years and a compound annual growth rate (CAGR) of 5.47%.

IWM’s CAGR is 8.05 percentage points higher than that of EEM and as a result, would have yielded $21,108 more on a $10,000 investment. Thus, IWM outperformed EEM by 8.05% annually.


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