VCIT vs. EEM: What’s The Difference?

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

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

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

Summary

VCIT EEM
Name Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares iShares MSCI Emerging Markets ETF
Category Corporate Bond Diversified Emerging Mkts
Issuer Vanguard iShares
AUM 48.39B 30.33B
Avg. Return 5.84% 5.47%
Div. Yield 2.33% 1.48%
Expense Ratio 0.05% 0.68%

The Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) is a Corporate Bond fund that is issued by Vanguard. It currently has 48.39B total assets under management and has yielded an average annual return of 5.84% over the past 10 years. The fund has a dividend yield of 2.33% 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%.

VCIT’s dividend yield is 0.85% higher than that of EEM (2.33% vs. 1.48%). Also, VCIT yielded on average 0.37% more per year over the past decade (5.84% vs. 5.47%). The expense ratio of VCIT is 0.63 percentage points lower than EEM’s (0.05% vs. 0.68%).

Fund Composition

Holdings

VCIT - Holdings

VCIT Bond Sectors Weight
BBB 55.28%
A 37.85%
AA 5.22%
AAA 1.57%
Below B 0.08%
Others 0.0%
B 0.0%
BB 0.0%
US Government 0.0%

VCIT’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and Below B at 55.28%, 37.85%, 5.22%, 1.57%, and 0.08%. The fund is less weighted towards Others (0.0%), B (0.0%), and BB (0.0%) rated bonds.

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%.

Risk Analysis

VCIT EEM
Mean Return 0.44 0.38
R-squared 63.18 83.5
Std. Deviation 5.08 17.79
Alpha 0.89 -2.33
Beta 1.35 1.08
Sharpe Ratio 0.91 0.22
Treynor Ratio 3.43 2.22

The Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) has a Alpha of 0.89 with a Sharpe Ratio of 0.91 and a Treynor Ratio of 3.43. Its Beta is 1.35 while VCIT’s Standard Deviation is 5.08. Furthermore, the fund has a Mean Return of 0.44 and a R-squared of 63.18.

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

VCIT’s Mean Return is 0.06 points higher than that of EEM and its R-squared is 20.32 points lower. With a Standard Deviation of 5.08, VCIT is slightly less volatile than EEM. The Alpha and Beta of VCIT are 3.22 points higher and 0.27 points higher than EEM’s Alpha and Beta.

Performance

Annual Returns

VCIT vs. EEM - Annual Returns

Year VCIT EEM
2020 9.55% 17.56%
2019 13.97% 17.67%
2018 -1.75% -14.98%
2017 5.5% 36.42%
2016 5.3% 10.51%
2015 0.88% -15.41%
2014 7.47% -2.82%
2013 -1.8% -3.14%
2012 11.36% 17.32%
2011 7.94% -18.87%
2010 10.65% 15.93%

VCIT had its best year in 2019 with an annual return of 13.97%. VCIT’s worst year over the past decade yielded -1.8% and occurred in 2013. In most years the Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares provided moderate returns such as in 2017, 2014, and 2011 where annual returns amounted to 5.5%, 7.47%, and 7.94% 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

VCIT vs. EEM - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VCIT $10,000 $17,439 5.84%
EEM $10,000 $13,437 5.47%

A $10,000 investment in VCIT would have resulted in a final balance of $17,439. This is a profit of $7,439 over 10 years and amounts to a compound annual growth rate (CAGR) of 5.84%.

With a $10,000 investment in EEM, the end total would have been $13,437. This equates to a $3,437 profit over 10 years and a compound annual growth rate (CAGR) of 5.47%.

VCIT’s CAGR is 0.37 percentage points higher than that of EEM and as a result, would have yielded $4,002 more on a $10,000 investment. Thus, VCIT outperformed EEM by 0.37% annually.


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