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.
Summary
| VWO | EEM | |
| Name | Vanguard FTSE Emerging Markets Index Fund ETF Shares | iShares MSCI Emerging Markets ETF |
| Category | Diversified Emerging Mkts | Diversified Emerging Mkts |
| Issuer | Vanguard | iShares |
| AUM | 117.28B | 30.33B |
| Avg. Return | 5.79% | 5.47% |
| Div. Yield | 1.98% | 1.48% |
| Expense Ratio | 0.1% | 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%).
Fund Composition
Industry Exposure
| VWO | EEM | |
| Technology | 17.06% | 21.36% |
| Industrials | 5.95% | 4.61% |
| Energy | 5.48% | 5.17% |
| Communication Services | 11.41% | 11.76% |
| Utilities | 2.55% | 1.99% |
| Healthcare | 5.33% | 5.06% |
| Consumer Defensive | 5.87% | 5.45% |
| Real Estate | 3.13% | 1.98% |
| Financial Services | 18.15% | 18.39% |
| Consumer Cyclical | 16.1% | 15.16% |
| Basic Materials | 8.98% | 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 | 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%.
| EEM Holdings | Weight |
| Taiwan Semiconductor Manufacturing Co Ltd | 6.36% |
| Alibaba Group Holding Ltd Ordinary Shares | 4.58% |
| Tencent Holdings Ltd | 4.41% |
| Samsung Electronics Co Ltd | 4.05% |
| Meituan | 1.24% |
| Vale SA | 1.04% |
| Naspers Ltd Class N | 1.04% |
| Reliance Industries Ltd Shs Dematerialised | 0.97% |
| Infosys Ltd | 0.92% |
| China Construction Bank Corp Class H | 0.83% |
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
| VWO | EEM | |
| Mean Return | 0.45 | 0.38 |
| R-squared | 81.69 | 83.5 |
| Std. Deviation | 17.64 | 17.79 |
| Alpha | -1.36 | -2.33 |
| Beta | 1.06 | 1.08 |
| Sharpe Ratio | 0.27 | 0.22 |
| Treynor Ratio | 3.14 | 2.22 |
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.
Performance
Annual Returns
| Year | VWO | EEM |
| 2020 | 15.32% | 17.56% |
| 2019 | 20.4% | 17.67% |
| 2018 | -14.57% | -14.98% |
| 2017 | 31.38% | 36.42% |
| 2016 | 11.75% | 10.51% |
| 2015 | -15.35% | -15.41% |
| 2014 | 0.6% | -2.82% |
| 2013 | -5.0% | -3.14% |
| 2012 | 18.84% | 17.32% |
| 2011 | -18.68% | -18.87% |
| 2010 | 18.99% | 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
| Fund | Initial Balance | Final Balance | CAGR |
| VWO | $10,000 | $16,200 | 5.79% |
| EEM | $10,000 | $15,578 | 5.47% |
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.
Current recommendations:
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.
I believe that money is just a means to an end: to be free to spend your time as you wish, to maximize your positive impact on the world.
