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

The expense ratio of VUG is 0.64 percentage points lower than EEM’s (0.04% vs. 0.68%). VUG also has a higher exposure to the technology sector and a lower standard deviation. Overall, VUG has provided higher returns than EEM over the past ten years.

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

Summary

VUGEEM
NameVanguard Growth Index Fund ETF SharesiShares MSCI Emerging Markets ETF
CategoryLarge GrowthDiversified Emerging Mkts
IssuerVanguardiShares
AUM165.53B30.33B
Avg. Return17.58%5.47%
Div. Yield0.57%1.48%
Expense Ratio0.04%0.68%

The Vanguard Growth Index Fund ETF Shares (VUG) is a Large Growth fund that is issued by Vanguard. It currently has 165.53B total assets under management and has yielded an average annual return of 17.58% over the past 10 years. The fund has a dividend yield of 0.57% with an expense ratio of 0.04%.

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%.

VUG’s dividend yield is 0.91% lower than that of EEM (0.57% vs. 1.48%). Also, VUG yielded on average 12.11% more per year over the past decade (17.58% vs. 5.47%). The expense ratio of VUG is 0.64 percentage points lower than EEM’s (0.04% vs. 0.68%).

Fund Composition

Industry Exposure

VUG vs. EEM - Industry Exposure

VUGEEM
Technology39.05%21.36%
Industrials5.13%4.61%
Energy0.32%5.17%
Communication Services16.49%11.76%
Utilities0.0%1.99%
Healthcare8.09%5.06%
Consumer Defensive2.41%5.45%
Real Estate2.46%1.98%
Financial Services6.75%18.39%
Consumer Cyclical17.78%15.16%
Basic Materials1.52%9.07%

The Vanguard Growth Index Fund ETF Shares (VUG) has the most exposure to the Technology sector at 39.05%. This is followed by Consumer Cyclical and Communication Services at 17.78% and 16.49% respectively. Energy (0.32%), Basic Materials (1.52%), and Consumer Defensive (2.41%) only make up 4.25% of the fund’s total assets.

VUG’s mid-section with moderate exposure is comprised of Real Estate, Industrials, Financial Services, Healthcare, and Communication Services stocks at 2.46%, 5.13%, 6.75%, 8.09%, and 16.49%.

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%.

VUG is 17.69% more exposed to the Technology sector than EEM (39.05% vs 21.36%). VUG’s exposure to Consumer Cyclical and Communication Services stocks is 2.62% higher and 4.73% higher respectively (17.78% vs. 15.16% and 16.49% vs. 11.76%). In total, Energy, Basic Materials, and Consumer Defensive also make up 15.44% less of the fund’s holdings compared to EEM (4.25% vs. 19.69%).

Holdings

VUG - Holdings

VUG HoldingsWeight
Apple Inc10.13%
Microsoft Corp9.52%
Amazon.com Inc6.88%
Facebook Inc Class A3.89%
Alphabet Inc Class A3.43%
Alphabet Inc Class C3.22%
Tesla Inc2.44%
NVIDIA Corp2.21%
Visa Inc Class A1.78%
PayPal Holdings Inc1.6%

VUG’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc Class A, and Alphabet Inc Class A at 10.13%, 9.52%, 6.88%, 3.89%, and 3.43%.

Alphabet Inc Class C (3.22%), Tesla Inc (2.44%), and NVIDIA Corp (2.21%) have a slightly smaller but still significant weight. Visa Inc Class A and PayPal Holdings Inc are also represented in the VUG’s holdings at 1.78% and 1.6%.

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%.

Risk Analysis

VUGEEM
Mean Return1.440.38
R-squared92.4883.5
Std. Deviation14.7617.79
Alpha1.81-2.33
Beta1.041.08
Sharpe Ratio1.130.22
Treynor Ratio16.132.22

The Vanguard Growth Index Fund ETF Shares (VUG) has a Standard Deviation of 14.76 with a Sharpe Ratio of 1.13 and a Mean Return of 1.44. Its R-squared is 92.48 while VUG’s Treynor Ratio is 16.13. Furthermore, the fund has a Beta of 1.04 and a Alpha of 1.81.

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

VUG’s Mean Return is 1.06 points higher than that of EEM and its R-squared is 8.98 points higher. With a Standard Deviation of 14.76, VUG is slightly less volatile than EEM. The Alpha and Beta of VUG are 4.14 points higher and 0.04 points lower than EEM’s Alpha and Beta.

Performance

Annual Returns

VUG vs. EEM - Annual Returns

YearVUGEEM
202040.16%17.56%
201937.26%17.67%
2018-3.32%-14.98%
201727.8%36.42%
20166.13%10.51%
20153.32%-15.41%
201413.62%-2.82%
201332.38%-3.14%
201217.03%17.32%
20111.87%-18.87%
201017.11%15.93%

VUG had its best year in 2020 with an annual return of 40.16%. VUG’s worst year over the past decade yielded -3.32% and occurred in 2018. In most years the Vanguard Growth Index Fund ETF Shares provided moderate returns such as in 2014, 2012, and 2010 where annual returns amounted to 13.62%, 17.03%, and 17.11% 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

VUG vs. EEM - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VUG$10,000$54,73517.58%
EEM$10,000$15,5785.47%

A $10,000 investment in VUG would have resulted in a final balance of $54,735. This is a profit of $44,735 over 11 years and amounts to a compound annual growth rate (CAGR) of 17.58%.

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%.

VUG’s CAGR is 12.11 percentage points higher than that of EEM and as a result, would have yielded $39,157 more on a $10,000 investment. Thus, VUG outperformed EEM by 12.11% annually.

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