VEU vs. EEM: What’s The Difference?

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) and the iShares MSCI Emerging Markets ETF (EEM) are both among the Top 100 ETFs. VEU is a Vanguard Foreign Large Blend fund and EEM is a iShares Diversified Emerging Mkts fund. So, what’s the difference between VEU and EEM? And which fund is better?

The expense ratio of VEU is 0.60 percentage points lower than EEM’s (0.08% vs. 0.68%). VEU also has a higher exposure to the financial services sector and a lower standard deviation. Overall, VEU has provided higher returns than EEM over the past ten years.

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

Summary

VEU EEM
Name Vanguard FTSE All-World ex-US Index Fund ETF Shares iShares MSCI Emerging Markets ETF
Category Foreign Large Blend Diversified Emerging Mkts
Issuer Vanguard iShares
AUM 53.64B 30.33B
Avg. Return 6.64% 5.47%
Div. Yield 2.31% 1.48%
Expense Ratio 0.08% 0.68%

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) is a Foreign Large Blend fund that is issued by Vanguard. It currently has 53.64B total assets under management and has yielded an average annual return of 6.64% over the past 10 years. The fund has a dividend yield of 2.31% with an expense ratio of 0.08%.

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%.

VEU’s dividend yield is 0.83% higher than that of EEM (2.31% vs. 1.48%). Also, VEU yielded on average 1.17% more per year over the past decade (6.64% vs. 5.47%). The expense ratio of VEU is 0.60 percentage points lower than EEM’s (0.08% vs. 0.68%).

Fund Composition

Industry Exposure

VEU vs. EEM - Industry Exposure

VEU EEM
Technology 12.94% 21.36%
Industrials 12.19% 4.61%
Energy 4.69% 5.17%
Communication Services 7.44% 11.76%
Utilities 2.89% 1.99%
Healthcare 9.34% 5.06%
Consumer Defensive 8.28% 5.45%
Real Estate 3.04% 1.98%
Financial Services 18.46% 18.39%
Consumer Cyclical 12.57% 15.16%
Basic Materials 8.17% 9.07%

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) has the most exposure to the Financial Services sector at 18.46%. This is followed by Technology and Consumer Cyclical at 12.94% and 12.57% respectively. Real Estate (3.04%), Energy (4.69%), and Communication Services (7.44%) only make up 15.17% of the fund’s total assets.

VEU’s mid-section with moderate exposure is comprised of Basic Materials, Consumer Defensive, Healthcare, Industrials, and Consumer Cyclical stocks at 8.17%, 8.28%, 9.34%, 12.19%, and 12.57%.

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%.

VEU is 0.07% more exposed to the Financial Services sector than EEM (18.46% vs 18.39%). VEU’s exposure to Technology and Consumer Cyclical stocks is 8.42% lower and 2.59% lower respectively (12.94% vs. 21.36% and 12.57% vs. 15.16%). In total, Real Estate, Energy, and Communication Services also make up 3.74% less of the fund’s holdings compared to EEM (15.17% vs. 18.91%).

Holdings

VEU - Holdings

VEU Holdings Weight
Tencent Holdings Ltd 1.57%
Alibaba Group Holding Ltd Ordinary Shares 1.4%
Nestle SA 1.22%
Taiwan Semiconductor Manufacturing Co Ltd 0.98%
ASML Holding NV 0.95%
Taiwan Semiconductor Manufacturing Co Ltd ADR 0.91%
Roche Holding AG 0.91%
Toyota Motor Corp 0.75%
LVMH Moet Hennessy Louis Vuitton SE 0.68%
Novartis AG 0.67%

VEU’s Top Holdings are Tencent Holdings Ltd, Alibaba Group Holding Ltd Ordinary Shares, Nestle SA, Taiwan Semiconductor Manufacturing Co Ltd, and ASML Holding NV at 1.57%, 1.4%, 1.22%, 0.98%, and 0.95%.

Taiwan Semiconductor Manufacturing Co Ltd ADR (0.91%), Roche Holding AG (0.91%), and Toyota Motor Corp (0.75%) have a slightly smaller but still significant weight. LVMH Moet Hennessy Louis Vuitton SE and Novartis AG are also represented in the VEU’s holdings at 0.68% and 0.67%.

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

VEU EEM
Mean Return 0.56 0.38
R-squared 98.44 83.5
Std. Deviation 15.08 17.79
Alpha 0.28 -2.33
Beta 0.99 1.08
Sharpe Ratio 0.4 0.22
Treynor Ratio 5.12 2.22

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) has a R-squared of 98.44 with a Beta of 0.99 and a Standard Deviation of 15.08. Its Mean Return is 0.56 while VEU’s Treynor Ratio is 5.12. Furthermore, the fund has a Alpha of 0.28 and a Sharpe Ratio of 0.4.

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 Alpha is -2.33. Furthermore, the fund has a Treynor Ratio of 2.22 and a Standard Deviation of 17.79.

VEU’s Mean Return is 0.18 points higher than that of EEM and its R-squared is 14.94 points higher. With a Standard Deviation of 15.08, VEU is slightly less volatile than EEM. The Alpha and Beta of VEU are 2.61 points higher and 0.09 points lower than EEM’s Alpha and Beta.

Performance

Annual Returns

VEU vs. EEM - Annual Returns

Year VEU EEM
2020 11.39% 17.56%
2019 21.63% 17.67%
2018 -13.97% -14.98%
2017 27.27% 36.42%
2016 4.77% 10.51%
2015 -4.67% -15.41%
2014 -4.05% -2.82%
2013 14.5% -3.14%
2012 18.55% 17.32%
2011 -14.25% -18.87%
2010 11.85% 15.93%

VEU had its best year in 2017 with an annual return of 27.27%. VEU’s worst year over the past decade yielded -14.25% and occurred in 2011. In most years the Vanguard FTSE All-World ex-US Index Fund ETF Shares provided moderate returns such as in 2016, 2020, and 2010 where annual returns amounted to 4.77%, 11.39%, and 11.85% 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

VEU vs. EEM - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VEU $10,000 $18,507 6.64%
EEM $10,000 $15,578 5.47%

A $10,000 investment in VEU would have resulted in a final balance of $18,507. This is a profit of $8,507 over 11 years and amounts to a compound annual growth rate (CAGR) of 6.64%.

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%.

VEU’s CAGR is 1.17 percentage points higher than that of EEM and as a result, would have yielded $2,929 more on a $10,000 investment. Thus, VEU outperformed EEM by 1.17% annually.


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