The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and HYG is a iShares High Yield Bond fund. So, what’s the difference between VWO and HYG? And which fund is better?
The expense ratio of VWO is 0.38 percentage points lower than HYG’s (0.1% vs. 0.48%). VWO also has a high exposure to the financial services sector while HYG is mostly comprised of BB bonds. Overall, VWO has provided lower returns than HYG over the past ten years.
In this article, we’ll compare VWO vs. HYG. We’ll look at annual returns and risk metrics, as well as at their holdings and industry exposure. Moreover, I’ll also discuss VWO’s and HYG’s portfolio growth, performance, and fund composition and examine how these affect their overall returns.
Summary
| VWO | HYG | |
| Name | Vanguard FTSE Emerging Markets Index Fund ETF Shares | iShares iBoxx $ High Yield Corporate Bond ETF |
| Category | Diversified Emerging Mkts | High Yield Bond |
| Issuer | Vanguard | iShares |
| AUM | 117.28B | 20.03B |
| Avg. Return | 5.79% | 6.42% |
| Div. Yield | 1.98% | 4.44% |
| Expense Ratio | 0.1% | 0.48% |
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 iBoxx $ High Yield Corporate Bond ETF (HYG) is a High Yield Bond fund that is issued by iShares. It currently has 20.03B total assets under management and has yielded an average annual return of 6.42% over the past 10 years. The fund has a dividend yield of 4.44% with an expense ratio of 0.48%.
VWO’s dividend yield is 2.46% lower than that of HYG (1.98% vs. 4.44%). Also, VWO yielded on average 0.63% less per year over the past decade (5.79% vs. 6.42%). The expense ratio of VWO is 0.38 percentage points lower than HYG’s (0.1% vs. 0.48%).
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%.
| HYG Bond Sectors | Weight |
| BB | 56.53% |
| B | 31.27% |
| Below B | 11.4% |
| BBB | 0.61% |
| AAA | 0.28% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
| Others | -0.09% |
HYG’s Top Bond Sectors are ratings of BB, B, Below B, BBB, and AAA at 56.53%, 31.27%, 11.4%, 0.61%, and 0.28%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.
Risk Analysis
| VWO | HYG | |
| Mean Return | 0.45 | 0.46 |
| R-squared | 81.69 | 4.1 |
| Std. Deviation | 17.64 | 6.96 |
| Alpha | -1.36 | 3.58 |
| Beta | 1.06 | 0.48 |
| Sharpe Ratio | 0.27 | 0.7 |
| Treynor Ratio | 3.14 | 10.01 |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Alpha of -1.36 with a Mean Return of 0.45 and a Beta of 1.06. Its Treynor Ratio is 3.14 while VWO’s Sharpe Ratio is 0.27. Furthermore, the fund has a Standard Deviation of 17.64 and a R-squared of 81.69.
The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a Beta of 0.48 with a R-squared of 4.1 and a Standard Deviation of 6.96. Its Mean Return is 0.46 while HYG’s Sharpe Ratio is 0.7. Furthermore, the fund has a Alpha of 3.58 and a Treynor Ratio of 10.01.
VWO’s Mean Return is 0.01 points lower than that of HYG and its R-squared is 77.59 points higher. With a Standard Deviation of 17.64, VWO is slightly more volatile than HYG. The Alpha and Beta of VWO are 4.94 points lower and 0.58 points higher than HYG’s Alpha and Beta.
Performance
Annual Returns
| Year | VWO | HYG |
| 2020 | 15.32% | 4.12% |
| 2019 | 20.4% | 14.23% |
| 2018 | -14.57% | -1.93% |
| 2017 | 31.38% | 6.09% |
| 2016 | 11.75% | 13.92% |
| 2015 | -15.35% | -5.55% |
| 2014 | 0.6% | 2.0% |
| 2013 | -5.0% | 5.9% |
| 2012 | 18.84% | 13.83% |
| 2011 | -18.68% | 5.89% |
| 2010 | 18.99% | 12.07% |
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 2019 was the strongest year for HYG, returning 14.23% on an annual basis. The poorest year for HYG in the last ten years was 2015, with a yield of -5.55%. Most years the iShares iBoxx $ High Yield Corporate Bond ETF has given investors modest returns, such as in 2011, 2013, and 2017, when gains were 5.89%, 5.9%, and 6.09% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VWO | $10,000 | $16,200 | 5.79% |
| HYG | $10,000 | $19,427 | 6.42% |
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 HYG, the end total would have been $19,427. This equates to a $9,427 profit over 11 years and a compound annual growth rate (CAGR) of 6.42%.
VWO’s CAGR is 0.63 percentage points lower than that of HYG and as a result, would have yielded $3,227 less on a $10,000 investment. Thus, VWO performed worse than HYG by 0.63% 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.
