The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and EMB is a iShares Emerging Markets Bond fund. So, what’s the difference between VNQ and EMB? And which fund is better?
The expense ratio of VNQ is 0.27 percentage points lower than EMB’s (0.12% vs. 0.39%). VNQ also has a high exposure to the real estate sector while EMB is mostly comprised of BBB bonds. Overall, VNQ has provided higher returns than EMB over the past ten years.
In this article, we’ll compare VNQ vs. EMB. We’ll look at annual returns and portfolio growth, as well as at their performance and industry exposure. Moreover, I’ll also discuss VNQ’s and EMB’s holdings, risk metrics, and fund composition and examine how these affect their overall returns.
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Summary
| VNQ | EMB | |
| Name | Vanguard Real Estate Index Fund ETF Shares | iShares J.P. Morgan USD Emerging Markets Bond ETF |
| Category | Real Estate | Emerging Markets Bond |
| Issuer | Vanguard | iShares |
| AUM | 77.34B | 19.76B |
| Avg. Return | 11.05% | 6.43% |
| Div. Yield | 2.34% | 3.85% |
| Expense Ratio | 0.12% | 0.39% |
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 J.P. Morgan USD Emerging Markets Bond ETF (EMB) is a Emerging Markets Bond fund that is issued by iShares. It currently has 19.76B total assets under management and has yielded an average annual return of 6.43% over the past 10 years. The fund has a dividend yield of 3.85% with an expense ratio of 0.39%.
VNQ’s dividend yield is 1.51% lower than that of EMB (2.34% vs. 3.85%). Also, VNQ yielded on average 4.61% more per year over the past decade (11.05% vs. 6.43%). The expense ratio of VNQ is 0.27 percentage points lower than EMB’s (0.12% vs. 0.39%).
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Fund Composition
Holdings
| VNQ Holdings | Weight |
| Vanguard Real Estate II Index | 11.62% |
| American Tower Corp | 7.24% |
| Prologis Inc | 5.33% |
| Crown Castle International Corp | 5.01% |
| Equinix Inc | 4.3% |
| Public Storage | 2.85% |
| Simon Property Group Inc | 2.52% |
| Digital Realty Trust Inc | 2.49% |
| SBA Communications Corp | 2.1% |
| Welltower Inc | 2.09% |
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%.
| EMB Bond Sectors | Weight |
| BBB | 33.79% |
| B | 21.97% |
| BB | 16.92% |
| A | 13.67% |
| AA | 7.97% |
| Below B | 4.49% |
| Others | 1.11% |
| AAA | 0.09% |
| US Government | 0.0% |
EMB’s Top Bond Sectors are ratings of BBB, B, BB, A, and AA at 33.79%, 21.97%, 16.92%, 13.67%, and 7.97%. The fund is less weighted towards Below B (4.49%), Others (1.11%), and AAA (0.09%) rated bonds.
Risk Analysis
| VNQ | EMB | |
| Mean Return | 0.89 | 0.44 |
| R-squared | 44.4 | 23.34 |
| Std. Deviation | 16.13 | 8.44 |
| Alpha | 2.47 | 0.89 |
| Beta | 0.76 | 1.36 |
| Sharpe Ratio | 0.62 | 0.55 |
| Treynor Ratio | 11.9 | 3.24 |
The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a Sharpe Ratio of 0.62 with a Mean Return of 0.89 and a Standard Deviation of 16.13. Its Treynor Ratio is 11.9 while VNQ’s Beta is 0.76. Furthermore, the fund has a Alpha of 2.47 and a R-squared of 44.4.
The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) has a Standard Deviation of 8.44 with a Sharpe Ratio of 0.55 and a Alpha of 0.89. Its Treynor Ratio is 3.24 while EMB’s R-squared is 23.34. Furthermore, the fund has a Mean Return of 0.44 and a Beta of 1.36.
VNQ’s Mean Return is 0.45 points higher than that of EMB and its R-squared is 21.06 points higher. With a Standard Deviation of 16.13, VNQ is slightly more volatile than EMB. The Alpha and Beta of VNQ are 1.58 points higher and 0.60 points lower than EMB’s Alpha and Beta.
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Performance
Annual Returns
| Year | VNQ | EMB |
| 2020 | -4.72% | 5.48% |
| 2019 | 28.91% | 15.57% |
| 2018 | -5.95% | -5.67% |
| 2017 | 4.95% | 9.98% |
| 2016 | 8.53% | 9.41% |
| 2015 | 2.37% | 0.43% |
| 2014 | 30.29% | 6.69% |
| 2013 | 2.42% | -7.42% |
| 2012 | 17.67% | 17.64% |
| 2011 | 8.62% | 7.2% |
| 2010 | 28.44% | 11.47% |
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 2012 was the strongest year for EMB, returning 17.64% on an annual basis. The poorest year for EMB in the last ten years was 2013, with a yield of -7.42%. Most years the iShares J.P. Morgan USD Emerging Markets Bond ETF has given investors modest returns, such as in 2014, 2011, and 2016, when gains were 6.69%, 7.2%, and 9.41% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VNQ | $10,000 | $29,506 | 11.05% |
| EMB | $10,000 | $19,295 | 6.43% |
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 EMB, the end total would have been $19,295. This equates to a $9,295 profit over 11 years and a compound annual growth rate (CAGR) of 6.43%.
VNQ’s CAGR is 4.61 percentage points higher than that of EMB and as a result, would have yielded $10,211 more on a $10,000 investment. Thus, VNQ outperformed EMB by 4.61% annually.
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