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VNQ vs. EEM: What’s The Difference?

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

The expense ratio of VNQ is 0.56 percentage points lower than EEM’s (0.12% vs. 0.68%). VNQ also has a higher exposure to the real estate sector and a lower standard deviation. Overall, VNQ has provided higher returns than EEM over the past ten years.

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

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Summary

VNQEEM
NameVanguard Real Estate Index Fund ETF SharesiShares MSCI Emerging Markets ETF
CategoryReal EstateDiversified Emerging Mkts
IssuerVanguardiShares
AUM77.34B30.33B
Avg. Return11.05%5.47%
Div. Yield2.34%1.48%
Expense Ratio0.12%0.68%

The Vanguard Real Estate Index Fund ETF Shares (VNQ) is a Real Estate fund that is issued by Vanguard. It currently has 77.34B total assets under management and has yielded an average annual return of 11.05% over the past 10 years. The fund has a dividend yield of 2.34% with an expense ratio of 0.12%.

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%.

VNQ’s dividend yield is 0.86% higher than that of EEM (2.34% vs. 1.48%). Also, VNQ yielded on average 5.58% more per year over the past decade (11.05% vs. 5.47%). The expense ratio of VNQ is 0.56 percentage points lower than EEM’s (0.12% vs. 0.68%).

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Fund Composition

Industry Exposure

VNQ vs. EEM - Industry Exposure

VNQEEM
Technology0.0%21.36%
Industrials0.0%4.61%
Energy0.0%5.17%
Communication Services0.0%11.76%
Utilities0.0%1.99%
Healthcare0.0%5.06%
Consumer Defensive0.0%5.45%
Real Estate100.0%1.98%
Financial Services0.0%18.39%
Consumer Cyclical0.0%15.16%
Basic Materials0.0%9.07%

The Vanguard Real Estate Index Fund ETF Shares (VNQ) has the most exposure to the Real Estate sector at 100.0%. This is followed by Technology and Industrials at 0.0% and 0.0% respectively. Consumer Cyclical (0.0%), Financial Services (0.0%), and Consumer Defensive (0.0%) only make up 0.00% of the fund’s total assets.

VNQ’s mid-section with moderate exposure is comprised of Healthcare, Utilities, Communication Services, Energy, and Industrials stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.0%.

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%.

VNQ is 98.02% more exposed to the Real Estate sector than EEM (100.0% vs 1.98%). VNQ’s exposure to Technology and Industrials stocks is 21.36% lower and 4.61% lower respectively (0.0% vs. 21.36% and 0.0% vs. 4.61%). In total, Consumer Cyclical, Financial Services, and Consumer Defensive also make up 39.00% less of the fund’s holdings compared to EEM (0.00% vs. 39.00%).

Holdings

VNQ - Holdings

VNQ HoldingsWeight
Vanguard Real Estate II Index11.62%
American Tower Corp7.24%
Prologis Inc5.33%
Crown Castle International Corp5.01%
Equinix Inc4.3%
Public Storage2.85%
Simon Property Group Inc2.52%
Digital Realty Trust Inc2.49%
SBA Communications Corp2.1%
Welltower Inc2.09%

VNQ’s Top Holdings are Vanguard Real Estate II Index, American Tower Corp, Prologis Inc, Crown Castle International Corp, and Equinix Inc at 11.62%, 7.24%, 5.33%, 5.01%, and 4.3%.

Public Storage (2.85%), Simon Property Group Inc (2.52%), and Digital Realty Trust Inc (2.49%) have a slightly smaller but still significant weight. SBA Communications Corp and Welltower Inc are also represented in the VNQ’s holdings at 2.1% and 2.09%.

EEM - Holdings

EEM HoldingsWeight
Taiwan Semiconductor Manufacturing Co Ltd6.36%
Alibaba Group Holding Ltd Ordinary Shares4.58%
Tencent Holdings Ltd4.41%
Samsung Electronics Co Ltd4.05%
Meituan1.24%
Vale SA1.04%
Naspers Ltd Class N1.04%
Reliance Industries Ltd Shs Dematerialised0.97%
Infosys Ltd0.92%
China Construction Bank Corp Class H0.83%

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

VNQEEM
Mean Return0.890.38
R-squared44.483.5
Std. Deviation16.1317.79
Alpha2.47-2.33
Beta0.761.08
Sharpe Ratio0.620.22
Treynor Ratio11.92.22

The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a R-squared of 44.4 with a Standard Deviation of 16.13 and a Treynor Ratio of 11.9. Its Beta is 0.76 while VNQ’s Mean Return is 0.89. Furthermore, the fund has a Alpha of 2.47 and a Sharpe Ratio of 0.62.

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

VNQ’s Mean Return is 0.51 points higher than that of EEM and its R-squared is 39.10 points lower. With a Standard Deviation of 16.13, VNQ is slightly less volatile than EEM. The Alpha and Beta of VNQ are 4.80 points higher and 0.32 points lower than EEM’s Alpha and Beta.

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Performance

Annual Returns

VNQ vs. EEM - Annual Returns

YearVNQEEM
2020-4.72%17.56%
201928.91%17.67%
2018-5.95%-14.98%
20174.95%36.42%
20168.53%10.51%
20152.37%-15.41%
201430.29%-2.82%
20132.42%-3.14%
201217.67%17.32%
20118.62%-18.87%
201028.44%15.93%

VNQ had its best year in 2014 with an annual return of 30.29%. VNQ’s worst year over the past decade yielded -5.95% and occurred in 2018. In most years the Vanguard Real Estate Index Fund ETF Shares provided moderate returns such as in 2017, 2016, and 2011 where annual returns amounted to 4.95%, 8.53%, and 8.62% 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

VNQ vs. EEM - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VNQ$10,000$29,50611.05%
EEM$10,000$15,5785.47%

A $10,000 investment in VNQ would have resulted in a final balance of $29,506. This is a profit of $19,506 over 11 years and amounts to a compound annual growth rate (CAGR) of 11.05%.

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%.

VNQ’s CAGR is 5.58 percentage points higher than that of EEM and as a result, would have yielded $13,928 more on a $10,000 investment. Thus, VNQ outperformed EEM by 5.58% annually.


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