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VWO vs. EEM: What’s The Difference?

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

The expense ratio of VWO is 0.58 percentage points lower than EEM’s (0.1% vs. 0.68%). VWO also has a lower exposure to the financial services sector and a lower standard deviation. Overall, VWO has provided higher returns than EEM over the past ten years.

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

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Summary

VWOEEM
NameVanguard FTSE Emerging Markets Index Fund ETF SharesiShares MSCI Emerging Markets ETF
CategoryDiversified Emerging MktsDiversified Emerging Mkts
IssuerVanguardiShares
AUM117.28B30.33B
Avg. Return5.79%5.47%
Div. Yield1.98%1.48%
Expense Ratio0.1%0.68%

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 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%.

VWO’s dividend yield is 0.50% higher than that of EEM (1.98% vs. 1.48%). Also, VWO yielded on average 0.32% more per year over the past decade (5.79% vs. 5.47%). The expense ratio of VWO is 0.58 percentage points lower than EEM’s (0.1% vs. 0.68%).

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Fund Composition

Industry Exposure

VWO vs. EEM - Industry Exposure

VWOEEM
Technology17.06%21.36%
Industrials5.95%4.61%
Energy5.48%5.17%
Communication Services11.41%11.76%
Utilities2.55%1.99%
Healthcare5.33%5.06%
Consumer Defensive5.87%5.45%
Real Estate3.13%1.98%
Financial Services18.15%18.39%
Consumer Cyclical16.1%15.16%
Basic Materials8.98%9.07%

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 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%.

VWO is 0.24% less exposed to the Financial Services sector than EEM (18.15% vs 18.39%). VWO’s exposure to Technology and Consumer Cyclical stocks is 4.30% lower and 0.94% higher respectively (17.06% vs. 21.36% and 16.1% vs. 15.16%). In total, Real Estate, Healthcare, and Energy also make up 1.73% more of the fund’s holdings compared to EEM (13.94% vs. 12.21%).

Holdings

VWO - Holdings

VWO HoldingsWeight
Tencent Holdings Ltd5.29%
Alibaba Group Holding Ltd Ordinary Shares4.73%
Taiwan Semiconductor Manufacturing Co Ltd4.58%
Meituan1.88%
Taiwan Semiconductor Manufacturing Co Ltd ADR1.7%
Reliance Industries Ltd Shs Dematerialised1.06%
Naspers Ltd Class N1.01%
Vale SA0.92%
Infosys Ltd0.91%
China Construction Bank Corp Class H0.84%

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%.

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

VWOEEM
Mean Return0.450.38
R-squared81.6983.5
Std. Deviation17.6417.79
Alpha-1.36-2.33
Beta1.061.08
Sharpe Ratio0.270.22
Treynor Ratio3.142.22

The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Treynor Ratio of 3.14 with a Beta of 1.06 and a Mean Return of 0.45. Its Sharpe Ratio is 0.27 while VWO’s R-squared is 81.69. Furthermore, the fund has a Standard Deviation of 17.64 and a Alpha of -1.36.

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

VWO’s Mean Return is 0.07 points higher than that of EEM and its R-squared is 1.81 points lower. With a Standard Deviation of 17.64, VWO is slightly less volatile than EEM. The Alpha and Beta of VWO are 0.97 points higher and 0.02 points lower than EEM’s Alpha and Beta.

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Performance

Annual Returns

VWO vs. EEM - Annual Returns

YearVWOEEM
202015.32%17.56%
201920.4%17.67%
2018-14.57%-14.98%
201731.38%36.42%
201611.75%10.51%
2015-15.35%-15.41%
20140.6%-2.82%
2013-5.0%-3.14%
201218.84%17.32%
2011-18.68%-18.87%
201018.99%15.93%

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 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

VWO vs. EEM - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VWO$10,000$16,2005.79%
EEM$10,000$15,5785.47%

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 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%.

VWO’s CAGR is 0.32 percentage points higher than that of EEM and as a result, would have yielded $622 more on a $10,000 investment. Thus, VWO outperformed EEM by 0.32% annually.


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