The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the iShares U.S. Treasury Bond ETF (GOVT) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and GOVT is a iShares Intermediate Government fund. So, what’s the difference between VWO and GOVT? And which fund is better?
The expense ratio of VWO is 0.05 percentage points higher than GOVT’s (0.1% vs. 0.05%). VWO also has a high exposure to the financial services sector while GOVT is mostly comprised of AAA bonds. Overall, VWO has provided higher returns than GOVT over the past ten years.
In this article, we’ll compare VWO vs. GOVT. We’ll look at portfolio growth and performance, as well as at their industry exposure and risk metrics. Moreover, I’ll also discuss VWO’s and GOVT’s annual returns, holdings, and fund composition and examine how these affect their overall returns.
Summary
| VWO | GOVT | |
| Name | Vanguard FTSE Emerging Markets Index Fund ETF Shares | iShares U.S. Treasury Bond ETF |
| Category | Diversified Emerging Mkts | Intermediate Government |
| Issuer | Vanguard | iShares |
| AUM | 117.28B | 17.07B |
| Avg. Return | 5.79% | 2.67% |
| Div. Yield | 1.98% | 1.0% |
| Expense Ratio | 0.1% | 0.05% |
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 U.S. Treasury Bond ETF (GOVT) is a Intermediate Government fund that is issued by iShares. It currently has 17.07B total assets under management and has yielded an average annual return of 2.67% over the past 10 years. The fund has a dividend yield of 1.0% with an expense ratio of 0.05%.
VWO’s dividend yield is 0.98% higher than that of GOVT (1.98% vs. 1.0%). Also, VWO yielded on average 3.12% more per year over the past decade (5.79% vs. 2.67%). The expense ratio of VWO is 0.05 percentage points higher than GOVT’s (0.1% vs. 0.05%).
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%.
| GOVT Bond Sectors | Weight |
| AAA | 100.0% |
| Others | 0.0% |
| Below B | 0.0% |
| B | 0.0% |
| BB | 0.0% |
| BBB | 0.0% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
GOVT’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.
Risk Analysis
| VWO | GOVT | |
| Mean Return | 0.45 | 0 |
| R-squared | 81.69 | 0 |
| Std. Deviation | 17.64 | 0 |
| Alpha | -1.36 | 0 |
| Beta | 1.06 | 0 |
| Sharpe Ratio | 0.27 | 0 |
| Treynor Ratio | 3.14 | 0 |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Standard Deviation of 17.64 with a Beta of 1.06 and a Alpha of -1.36. Its Sharpe Ratio is 0.27 while VWO’s Mean Return is 0.45. Furthermore, the fund has a R-squared of 81.69 and a Treynor Ratio of 3.14.
The iShares U.S. Treasury Bond ETF (GOVT) has a Mean Return of 0 with a Standard Deviation of 0 and a Treynor Ratio of 0. Its Beta is 0 while GOVT’s Sharpe Ratio is 0. Furthermore, the fund has a Alpha of 0 and a R-squared of 0.
VWO’s Mean Return is 0.45 points higher than that of GOVT and its R-squared is 81.69 points higher. With a Standard Deviation of 17.64, VWO is slightly more volatile than GOVT. The Alpha and Beta of VWO are 1.36 points lower and 1.06 points higher than GOVT’s Alpha and Beta.
Performance
Annual Returns
| Year | VWO | GOVT |
| 2020 | 15.32% | 7.92% |
| 2019 | 20.4% | 6.71% |
| 2018 | -14.57% | 0.74% |
| 2017 | 31.38% | 2.19% |
| 2016 | 11.75% | 0.92% |
| 2015 | -15.35% | 0.76% |
| 2014 | 0.6% | 4.99% |
| 2013 | -5.0% | -2.84% |
| 2012 | 18.84% | 0.0% |
| 2011 | -18.68% | 0.0% |
| 2010 | 18.99% | 0.0% |
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 2020 was the strongest year for GOVT, returning 7.92% on an annual basis. The poorest year for GOVT in the last ten years was 2013, with a yield of -2.84%. Most years the iShares U.S. Treasury Bond ETF has given investors modest returns, such as in 2018, 2015, and 2016, when gains were 0.74%, 0.76%, and 0.92% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VWO | $10,000 | $14,088 | 5.79% |
| GOVT | $10,000 | $12,297 | 2.67% |
A $10,000 investment in VWO would have resulted in a final balance of $14,088. This is a profit of $4,088 over 8 years and amounts to a compound annual growth rate (CAGR) of 5.79%.
With a $10,000 investment in GOVT, the end total would have been $12,297. This equates to a $2,297 profit over 8 years and a compound annual growth rate (CAGR) of 2.67%.
VWO’s CAGR is 3.12 percentage points higher than that of GOVT and as a result, would have yielded $1,791 more on a $10,000 investment. Thus, VWO outperformed GOVT by 3.12% annually.
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