The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and VEU is a Vanguard Foreign Large Blend fund. So, what’s the difference between VNQ and VEU? And which fund is better?
The expense ratio of VNQ is 0.04 percentage points higher than VEU’s (0.12% vs. 0.08%). VNQ also has a higher exposure to the real estate sector and a higher standard deviation. Overall, VNQ has provided higher returns than VEU over the past ten years.
In this article, we’ll compare VNQ vs. VEU. We’ll look at industry exposure and annual returns, as well as at their portfolio growth and risk metrics. Moreover, I’ll also discuss VNQ’s and VEU’s fund composition, performance, and holdings and examine how these affect their overall returns.
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Summary
| VNQ | VEU | |
| Name | Vanguard Real Estate Index Fund ETF Shares | Vanguard FTSE All-World ex-US Index Fund ETF Shares |
| Category | Real Estate | Foreign Large Blend |
| Issuer | Vanguard | Vanguard |
| AUM | 77.34B | 53.64B |
| Avg. Return | 11.05% | 6.64% |
| Div. Yield | 2.34% | 2.31% |
| Expense Ratio | 0.12% | 0.08% |
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 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%.
VNQ’s dividend yield is 0.03% higher than that of VEU (2.34% vs. 2.31%). Also, VNQ yielded on average 4.41% more per year over the past decade (11.05% vs. 6.64%). The expense ratio of VNQ is 0.04 percentage points higher than VEU’s (0.12% vs. 0.08%).
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Fund Composition
Industry Exposure
| VNQ | VEU | |
| Technology | 0.0% | 12.94% |
| Industrials | 0.0% | 12.19% |
| Energy | 0.0% | 4.69% |
| Communication Services | 0.0% | 7.44% |
| Utilities | 0.0% | 2.89% |
| Healthcare | 0.0% | 9.34% |
| Consumer Defensive | 0.0% | 8.28% |
| Real Estate | 100.0% | 3.04% |
| Financial Services | 0.0% | 18.46% |
| Consumer Cyclical | 0.0% | 12.57% |
| Basic Materials | 0.0% | 8.17% |
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 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%.
VNQ is 96.96% more exposed to the Real Estate sector than VEU (100.0% vs 3.04%). VNQ’s exposure to Technology and Industrials stocks is 12.94% lower and 12.19% lower respectively (0.0% vs. 12.94% and 0.0% vs. 12.19%). In total, Consumer Cyclical, Financial Services, and Consumer Defensive also make up 39.31% less of the fund’s holdings compared to VEU (0.00% vs. 39.31%).
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%.
| 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%.
Risk Analysis
| VNQ | VEU | |
| Mean Return | 0.89 | 0.56 |
| R-squared | 44.4 | 98.44 |
| Std. Deviation | 16.13 | 15.08 |
| Alpha | 2.47 | 0.28 |
| Beta | 0.76 | 0.99 |
| Sharpe Ratio | 0.62 | 0.4 |
| Treynor Ratio | 11.9 | 5.12 |
The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a Treynor Ratio of 11.9 with a R-squared of 44.4 and a Beta of 0.76. Its Alpha is 2.47 while VNQ’s Standard Deviation is 16.13. Furthermore, the fund has a Mean Return of 0.89 and a Sharpe Ratio of 0.62.
The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) has a Beta of 0.99 with a Standard Deviation of 15.08 and a Sharpe Ratio of 0.4. Its R-squared is 98.44 while VEU’s Alpha is 0.28. Furthermore, the fund has a Mean Return of 0.56 and a Treynor Ratio of 5.12.
VNQ’s Mean Return is 0.33 points higher than that of VEU and its R-squared is 54.04 points lower. With a Standard Deviation of 16.13, VNQ is slightly more volatile than VEU. The Alpha and Beta of VNQ are 2.19 points higher and 0.23 points lower than VEU’s Alpha and Beta.
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Performance
Annual Returns
| Year | VNQ | VEU |
| 2020 | -4.72% | 11.39% |
| 2019 | 28.91% | 21.63% |
| 2018 | -5.95% | -13.97% |
| 2017 | 4.95% | 27.27% |
| 2016 | 8.53% | 4.77% |
| 2015 | 2.37% | -4.67% |
| 2014 | 30.29% | -4.05% |
| 2013 | 2.42% | 14.5% |
| 2012 | 17.67% | 18.55% |
| 2011 | 8.62% | -14.25% |
| 2010 | 28.44% | 11.85% |
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 VEU, returning 27.27% on an annual basis. The poorest year for VEU in the last ten years was 2011, with a yield of -14.25%. Most years the Vanguard FTSE All-World ex-US Index Fund ETF Shares has given investors modest returns, such as in 2016, 2020, and 2010, when gains were 4.77%, 11.39%, and 11.85% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VNQ | $10,000 | $29,506 | 11.05% |
| VEU | $10,000 | $18,507 | 6.64% |
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 VEU, the end total would have been $18,507. This equates to a $8,507 profit over 11 years and a compound annual growth rate (CAGR) of 6.64%.
VNQ’s CAGR is 4.41 percentage points higher than that of VEU and as a result, would have yielded $10,999 more on a $10,000 investment. Thus, VNQ outperformed VEU by 4.41% annually.
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