The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the Dimensional U.S. Core Equity 2 ETF (DFAC) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and DFAC is a Dimensional Fund Advisors Large Blend fund. So, what’s the difference between VWO and DFAC? And which fund is better?
The expense ratio of VWO is 0.09 percentage points lower than DFAC’s (0.1% vs. 0.19%). VWO also has a higher exposure to the financial services sector and a higher standard deviation. Overall, VWO has provided lower returns than DFAC over the past ten years.
In this article, we’ll compare VWO vs. DFAC. We’ll look at performance and industry exposure, as well as at their portfolio growth and risk metrics. Moreover, I’ll also discuss VWO’s and DFAC’s holdings, fund composition, and annual returns and examine how these affect their overall returns.
Summary
| VWO | DFAC | |
| Name | Vanguard FTSE Emerging Markets Index Fund ETF Shares | Dimensional U.S. Core Equity 2 ETF |
| Category | Diversified Emerging Mkts | Large Blend |
| Issuer | Vanguard | Dimensional Fund Advisors |
| AUM | 117.28B | 13.53B |
| Avg. Return | 5.79% | 13.93% |
| Div. Yield | 1.98% | 1.0% |
| Expense Ratio | 0.1% | 0.19% |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) is a Diversified Emerging Mkts fund that is issued by Vanguard. It currently has 117.28B total assets under management and has yielded an average annual return of 5.79% over the past 10 years. The fund has a dividend yield of 1.98% with an expense ratio of 0.1%.
The Dimensional U.S. Core Equity 2 ETF (DFAC) is a Large Blend fund that is issued by Dimensional Fund Advisors. It currently has 13.53B total assets under management and has yielded an average annual return of 13.93% over the past 10 years. The fund has a dividend yield of 1.0% with an expense ratio of 0.19%.
VWO’s dividend yield is 0.98% higher than that of DFAC (1.98% vs. 1.0%). Also, VWO yielded on average 8.14% less per year over the past decade (5.79% vs. 13.93%). The expense ratio of VWO is 0.09 percentage points lower than DFAC’s (0.1% vs. 0.19%).
Fund Composition
Industry Exposure
| VWO | DFAC | |
| Technology | 17.06% | 22.81% |
| Industrials | 5.95% | 14.13% |
| Energy | 5.48% | 2.67% |
| Communication Services | 11.41% | 7.63% |
| Utilities | 2.55% | 1.54% |
| Healthcare | 5.33% | 12.09% |
| Consumer Defensive | 5.87% | 5.94% |
| Real Estate | 3.13% | 0.37% |
| Financial Services | 18.15% | 16.17% |
| Consumer Cyclical | 16.1% | 13.09% |
| Basic Materials | 8.98% | 3.56% |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has the most exposure to the Financial Services sector at 18.15%. This is followed by Technology and Consumer Cyclical at 17.06% and 16.1% respectively. Real Estate (3.13%), Healthcare (5.33%), and Energy (5.48%) only make up 13.94% of the fund’s total assets.
VWO’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Basic Materials, Communication Services, and Consumer Cyclical stocks at 5.87%, 5.95%, 8.98%, 11.41%, and 16.1%.
The Dimensional U.S. Core Equity 2 ETF (DFAC) has the most exposure to the Technology sector at 22.81%. This is followed by Financial Services and Industrials at 16.17% and 14.13% respectively. Utilities (1.54%), Energy (2.67%), and Basic Materials (3.56%) only make up 7.77% of the fund’s total assets.
DFAC’s mid-section with moderate exposure is comprised of Consumer Defensive, Communication Services, Healthcare, Consumer Cyclical, and Industrials stocks at 5.94%, 7.63%, 12.09%, 13.09%, and 14.13%.
VWO is 1.98% more exposed to the Financial Services sector than DFAC (18.15% vs 16.17%). VWO’s exposure to Technology and Consumer Cyclical stocks is 5.75% lower and 3.01% higher respectively (17.06% vs. 22.81% and 16.1% vs. 13.09%). In total, Real Estate, Healthcare, and Energy also make up 1.19% less of the fund’s holdings compared to DFAC (13.94% vs. 15.13%).
Holdings
| VWO Holdings | Weight |
| Tencent Holdings Ltd | 5.29% |
| Alibaba Group Holding Ltd Ordinary Shares | 4.73% |
| Taiwan Semiconductor Manufacturing Co Ltd | 4.58% |
| Meituan | 1.88% |
| Taiwan Semiconductor Manufacturing Co Ltd ADR | 1.7% |
| Reliance Industries Ltd Shs Dematerialised | 1.06% |
| Naspers Ltd Class N | 1.01% |
| Vale SA | 0.92% |
| Infosys Ltd | 0.91% |
| China Construction Bank Corp Class H | 0.84% |
VWO’s Top Holdings are Tencent Holdings Ltd, Alibaba Group Holding Ltd Ordinary Shares, Taiwan Semiconductor Manufacturing Co Ltd, Meituan, and Taiwan Semiconductor Manufacturing Co Ltd ADR at 5.29%, 4.73%, 4.58%, 1.88%, and 1.7%.
Reliance Industries Ltd Shs Dematerialised (1.06%), Naspers Ltd Class N (1.01%), and Vale SA (0.92%) have a slightly smaller but still significant weight. Infosys Ltd and China Construction Bank Corp Class H are also represented in the VWO’s holdings at 0.91% and 0.84%.
| DFAC Holdings | Weight |
| Apple Inc | 4.7% |
| Microsoft Corp | 3.81% |
| Amazon.com Inc | 2.39% |
| Johnson & Johnson | 1.05% |
| Facebook Inc Class A | 1.05% |
| JPMorgan Chase & Co | 1.0% |
| Alphabet Inc Class C | 0.85% |
| Alphabet Inc Class A | 0.84% |
| Berkshire Hathaway Inc Class B | 0.75% |
| Visa Inc Class A | 0.74% |
DFAC’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Johnson & Johnson, and Facebook Inc Class A at 4.7%, 3.81%, 2.39%, 1.05%, and 1.05%.
JPMorgan Chase & Co (1.0%), Alphabet Inc Class C (0.85%), and Alphabet Inc Class A (0.84%) have a slightly smaller but still significant weight. Berkshire Hathaway Inc Class B and Visa Inc Class A are also represented in the DFAC’s holdings at 0.75% and 0.74%.
Risk Analysis
| VWO | DFAC | |
| Mean Return | 0.45 | 1.19 |
| R-squared | 81.69 | 95.1 |
| Std. Deviation | 17.64 | 15.55 |
| Alpha | -1.36 | -2.75 |
| Beta | 1.06 | 1.12 |
| Sharpe Ratio | 0.27 | 0.88 |
| Treynor Ratio | 3.14 | 11.85 |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Standard Deviation of 17.64 with a Mean Return of 0.45 and a R-squared of 81.69. Its Beta is 1.06 while VWO’s Sharpe Ratio is 0.27. Furthermore, the fund has a Alpha of -1.36 and a Treynor Ratio of 3.14.
The Dimensional U.S. Core Equity 2 ETF (DFAC) has a Sharpe Ratio of 0.88 with a Treynor Ratio of 11.85 and a R-squared of 95.1. Its Alpha is -2.75 while DFAC’s Mean Return is 1.19. Furthermore, the fund has a Standard Deviation of 15.55 and a Beta of 1.12.
VWO’s Mean Return is 0.74 points lower than that of DFAC and its R-squared is 13.41 points lower. With a Standard Deviation of 17.64, VWO is slightly more volatile than DFAC. The Alpha and Beta of VWO are 1.39 points higher and 0.06 points lower than DFAC’s Alpha and Beta.
Performance
Annual Returns
| Year | VWO | DFAC |
| 2020 | 15.32% | 15.8% |
| 2019 | 20.4% | 29.54% |
| 2018 | -14.57% | -9.43% |
| 2017 | 31.38% | 18.82% |
| 2016 | 11.75% | 16.31% |
| 2015 | -15.35% | -2.53% |
| 2014 | 0.6% | 9.56% |
| 2013 | -5.0% | 37.55% |
| 2012 | 18.84% | 17.93% |
| 2011 | -18.68% | -1.96% |
| 2010 | 18.99% | 21.67% |
VWO had its best year in 2017 with an annual return of 31.38%. VWO’s worst year over the past decade yielded -18.68% and occurred in 2011. In most years the Vanguard FTSE Emerging Markets Index Fund ETF Shares provided moderate returns such as in 2014, 2016, and 2020 where annual returns amounted to 0.6%, 11.75%, and 15.32% respectively.
The year 2013 was the strongest year for DFAC, returning 37.55% on an annual basis. The poorest year for DFAC in the last ten years was 2018, with a yield of -9.43%. Most years the Dimensional U.S. Core Equity 2 ETF has given investors modest returns, such as in 2020, 2016, and 2012, when gains were 15.8%, 16.31%, and 17.93% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VWO | $10,000 | $16,200 | 5.79% |
| DFAC | $10,000 | $38,796 | 13.93% |
A $10,000 investment in VWO would have resulted in a final balance of $16,200. This is a profit of $6,200 over 11 years and amounts to a compound annual growth rate (CAGR) of 5.79%.
With a $10,000 investment in DFAC, the end total would have been $38,796. This equates to a $28,796 profit over 11 years and a compound annual growth rate (CAGR) of 13.93%.
VWO’s CAGR is 8.14 percentage points lower than that of DFAC and as a result, would have yielded $22,596 less on a $10,000 investment. Thus, VWO performed worse than DFAC by 8.14% annually.
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