The Vanguard Small-Cap Index Fund ETF Shares (VB) and the iShares MSCI Emerging Markets ETF (EEM) are both among the Top 100 ETFs. VB is a Vanguard Small Blend fund and EEM is a iShares Diversified Emerging Mkts fund. So, what’s the difference between VB and EEM? And which fund is better?
The expense ratio of VB is 0.63 percentage points lower than EEM’s (0.05% vs. 0.68%). VB also has a lower exposure to the technology sector and a higher standard deviation. Overall, VB has provided higher returns than EEM over the past ten years.
In this article, we’ll compare VB vs. EEM. We’ll look at portfolio growth and annual returns, as well as at their industry exposure and fund composition. Moreover, I’ll also discuss VB’s and EEM’s performance, holdings, and risk metrics and examine how these affect their overall returns.
|Name||Vanguard Small-Cap Index Fund ETF Shares||iShares MSCI Emerging Markets ETF|
|Category||Small Blend||Diversified Emerging Mkts|
The Vanguard Small-Cap Index Fund ETF Shares (VB) is a Small Blend fund that is issued by Vanguard. It currently has 137.72B total assets under management and has yielded an average annual return of 14.25% over the past 10 years. The fund has a dividend yield of 1.14% with an expense ratio of 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%.
VB’s dividend yield is 0.34% lower than that of EEM (1.14% vs. 1.48%). Also, VB yielded on average 8.78% more per year over the past decade (14.25% vs. 5.47%). The expense ratio of VB is 0.63 percentage points lower than EEM’s (0.05% vs. 0.68%).
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The Vanguard Small-Cap Index Fund ETF Shares (VB) has the most exposure to the Technology sector at 16.85%. This is followed by Industrials and Healthcare at 16.11% and 14.34% respectively. Communication Services (2.4%), Energy (3.67%), and Consumer Defensive (4.14%) only make up 10.21% of the fund’s total assets.
VB’s mid-section with moderate exposure is comprised of Basic Materials, Real Estate, Consumer Cyclical, Financial Services, and Healthcare stocks at 4.63%, 9.56%, 13.03%, 13.06%, and 14.34%.
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%.
VB is 4.51% less exposed to the Technology sector than EEM (16.85% vs 21.36%). VB’s exposure to Industrials and Healthcare stocks is 11.50% higher and 9.28% higher respectively (16.11% vs. 4.61% and 14.34% vs. 5.06%). In total, Communication Services, Energy, and Consumer Defensive also make up 12.17% less of the fund’s holdings compared to EEM (10.21% vs. 22.38%).
|Charles River Laboratories International Inc||0.34%|
|Diamondback Energy Inc||0.31%|
|VICI Properties Inc Ordinary Shares||0.3%|
VB’s Top Holdings are Charles River Laboratories International Inc, Pool Corp, Bio-Techne Corp, Avantor Inc, and PerkinElmer Inc at 0.34%, 0.32%, 0.32%, 0.32%, and 0.31%.
Diamondback Energy Inc (0.31%), VICI Properties Inc Ordinary Shares (0.3%), and IDEX Corp (0.3%) have a slightly smaller but still significant weight. Entegris Inc and Novavax Inc are also represented in the VB’s holdings at 0.3% and 0.29%.
|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%|
|Naspers Ltd Class N||1.04%|
|Reliance Industries Ltd Shs Dematerialised||0.97%|
|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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The Vanguard Small-Cap Index Fund ETF Shares (VB) has a Beta of 1.21 with a Mean Return of 1.15 and a Standard Deviation of 17.82. Its Sharpe Ratio is 0.74 while VB’s Alpha is -4.02. Furthermore, the fund has a R-squared of 85.03 and a Treynor Ratio of 10.15.
The iShares MSCI Emerging Markets ETF (EEM) has a Beta of 1.08 with a Alpha of -2.33 and a Standard Deviation of 17.79. Its Sharpe Ratio is 0.22 while EEM’s R-squared is 83.5. Furthermore, the fund has a Treynor Ratio of 2.22 and a Mean Return of 0.38.
VB’s Mean Return is 0.77 points higher than that of EEM and its R-squared is 1.53 points higher. With a Standard Deviation of 17.82, VB is slightly more volatile than EEM. The Alpha and Beta of VB are 1.69 points lower and 0.13 points higher than EEM’s Alpha and Beta.
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VB had its best year in 2013 with an annual return of 37.8%. VB’s worst year over the past decade yielded -9.3% and occurred in 2018. In most years the Vanguard Small-Cap Index Fund ETF Shares provided moderate returns such as in 2017, 2012, and 2016 where annual returns amounted to 16.24%, 18.22%, and 18.31% 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.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in VB would have resulted in a final balance of $39,734. This is a profit of $29,734 over 11 years and amounts to a compound annual growth rate (CAGR) of 14.25%.
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%.
VB’s CAGR is 8.78 percentage points higher than that of EEM and as a result, would have yielded $24,156 more on a $10,000 investment. Thus, VB outperformed EEM by 8.78% annually.
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