The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and EMB is a iShares Emerging Markets Bond fund. So, what’s the difference between VWO and EMB? And which fund is better?
The expense ratio of VWO is 0.29 percentage points lower than EMB’s (0.1% vs. 0.39%). VWO also has a high exposure to the financial services sector while EMB is mostly comprised of BBB bonds. Overall, VWO has provided lower returns than EMB over the past ten years.
In this article, we’ll compare VWO vs. EMB. We’ll look at holdings and industry exposure, as well as at their risk metrics and fund composition. Moreover, I’ll also discuss VWO’s and EMB’s performance, portfolio growth, and annual returns and examine how these affect their overall returns.
Summary
| VWO | EMB | |
| Name | Vanguard FTSE Emerging Markets Index Fund ETF Shares | iShares J.P. Morgan USD Emerging Markets Bond ETF |
| Category | Diversified Emerging Mkts | Emerging Markets Bond |
| Issuer | Vanguard | iShares |
| AUM | 117.28B | 19.76B |
| Avg. Return | 5.79% | 6.43% |
| Div. Yield | 1.98% | 3.85% |
| Expense Ratio | 0.1% | 0.39% |
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 J.P. Morgan USD Emerging Markets Bond ETF (EMB) is a Emerging Markets Bond fund that is issued by iShares. It currently has 19.76B total assets under management and has yielded an average annual return of 6.43% over the past 10 years. The fund has a dividend yield of 3.85% with an expense ratio of 0.39%.
VWO’s dividend yield is 1.87% lower than that of EMB (1.98% vs. 3.85%). Also, VWO yielded on average 0.65% less per year over the past decade (5.79% vs. 6.43%). The expense ratio of VWO is 0.29 percentage points lower than EMB’s (0.1% vs. 0.39%).
Fund Composition
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%.
| EMB Bond Sectors | Weight |
| BBB | 33.79% |
| B | 21.97% |
| BB | 16.92% |
| A | 13.67% |
| AA | 7.97% |
| Below B | 4.49% |
| Others | 1.11% |
| AAA | 0.09% |
| US Government | 0.0% |
EMB’s Top Bond Sectors are ratings of BBB, B, BB, A, and AA at 33.79%, 21.97%, 16.92%, 13.67%, and 7.97%. The fund is less weighted towards Below B (4.49%), Others (1.11%), and AAA (0.09%) rated bonds.
Risk Analysis
| VWO | EMB | |
| Mean Return | 0.45 | 0.44 |
| R-squared | 81.69 | 23.34 |
| Std. Deviation | 17.64 | 8.44 |
| Alpha | -1.36 | 0.89 |
| Beta | 1.06 | 1.36 |
| Sharpe Ratio | 0.27 | 0.55 |
| Treynor Ratio | 3.14 | 3.24 |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Sharpe Ratio of 0.27 with a Mean Return of 0.45 and a Standard Deviation of 17.64. Its Alpha is -1.36 while VWO’s Beta is 1.06. Furthermore, the fund has a R-squared of 81.69 and a Treynor Ratio of 3.14.
The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) has a Sharpe Ratio of 0.55 with a Treynor Ratio of 3.24 and a Standard Deviation of 8.44. Its Mean Return is 0.44 while EMB’s Alpha is 0.89. Furthermore, the fund has a R-squared of 23.34 and a Beta of 1.36.
VWO’s Mean Return is 0.01 points higher than that of EMB and its R-squared is 58.35 points higher. With a Standard Deviation of 17.64, VWO is slightly more volatile than EMB. The Alpha and Beta of VWO are 2.25 points lower and 0.30 points lower than EMB’s Alpha and Beta.
Performance
Annual Returns
| Year | VWO | EMB |
| 2020 | 15.32% | 5.48% |
| 2019 | 20.4% | 15.57% |
| 2018 | -14.57% | -5.67% |
| 2017 | 31.38% | 9.98% |
| 2016 | 11.75% | 9.41% |
| 2015 | -15.35% | 0.43% |
| 2014 | 0.6% | 6.69% |
| 2013 | -5.0% | -7.42% |
| 2012 | 18.84% | 17.64% |
| 2011 | -18.68% | 7.2% |
| 2010 | 18.99% | 11.47% |
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 2012 was the strongest year for EMB, returning 17.64% on an annual basis. The poorest year for EMB in the last ten years was 2013, with a yield of -7.42%. Most years the iShares J.P. Morgan USD Emerging Markets Bond ETF has given investors modest returns, such as in 2014, 2011, and 2016, when gains were 6.69%, 7.2%, and 9.41% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VWO | $10,000 | $16,200 | 5.79% |
| EMB | $10,000 | $19,295 | 6.43% |
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 EMB, the end total would have been $19,295. This equates to a $9,295 profit over 11 years and a compound annual growth rate (CAGR) of 6.43%.
VWO’s CAGR is 0.65 percentage points lower than that of EMB and as a result, would have yielded $3,095 less on a $10,000 investment. Thus, VWO performed worse than EMB by 0.65% annually.
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