The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and IGSB is a iShares Short-Term Bond fund. So, what’s the difference between VWO and IGSB? And which fund is better?
The expense ratio of VWO is 0.04 percentage points higher than IGSB’s (0.1% vs. 0.06%). VWO also has a high exposure to the financial services sector while IGSB is mostly comprised of BBB bonds. Overall, VWO has provided higher returns than IGSB over the past ten years.
In this article, we’ll compare VWO vs. IGSB. We’ll look at performance and fund composition, as well as at their risk metrics and holdings. Moreover, I’ll also discuss VWO’s and IGSB’s industry exposure, portfolio growth, and annual returns and examine how these affect their overall returns.
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Summary
| VWO | IGSB | |
| Name | Vanguard FTSE Emerging Markets Index Fund ETF Shares | iShares 1-5 Year Investment Grade Corporate Bond ETF |
| Category | Diversified Emerging Mkts | Short-Term Bond |
| Issuer | Vanguard | iShares |
| AUM | 117.28B | 26.63B |
| Avg. Return | 5.79% | 2.51% |
| Div. Yield | 1.98% | 2.02% |
| Expense Ratio | 0.1% | 0.06% |
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 1-5 Year Investment Grade Corporate Bond ETF (IGSB) is a Short-Term Bond fund that is issued by iShares. It currently has 26.63B total assets under management and has yielded an average annual return of 2.51% over the past 10 years. The fund has a dividend yield of 2.02% with an expense ratio of 0.06%.
VWO’s dividend yield is 0.04% lower than that of IGSB (1.98% vs. 2.02%). Also, VWO yielded on average 3.28% more per year over the past decade (5.79% vs. 2.51%). The expense ratio of VWO is 0.04 percentage points higher than IGSB’s (0.1% vs. 0.06%).
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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%.
| IGSB Bond Sectors | Weight |
| BBB | 50.48% |
| A | 40.04% |
| AA | 7.46% |
| AAA | 2.21% |
| BB | 0.09% |
| Below B | 0.0% |
| B | 0.0% |
| US Government | 0.0% |
| Others | -0.28% |
IGSB’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and BB at 50.48%, 40.04%, 7.46%, 2.21%, and 0.09%. The fund is less weighted towards Below B (0.0%), B (0.0%), and US Government (0.0%) rated bonds.
Risk Analysis
| VWO | IGSB | |
| Mean Return | 0.45 | 0.19 |
| R-squared | 81.69 | 26.13 |
| Std. Deviation | 17.64 | 2 |
| Alpha | -1.36 | 0.69 |
| Beta | 1.06 | 0.34 |
| Sharpe Ratio | 0.27 | 0.82 |
| Treynor Ratio | 3.14 | 4.82 |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Alpha of -1.36 with a Sharpe Ratio of 0.27 and a R-squared of 81.69. Its Mean Return is 0.45 while VWO’s Beta is 1.06. Furthermore, the fund has a Treynor Ratio of 3.14 and a Standard Deviation of 17.64.
The iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB) has a Treynor Ratio of 4.82 with a Sharpe Ratio of 0.82 and a Mean Return of 0.19. Its Alpha is 0.69 while IGSB’s Beta is 0.34. Furthermore, the fund has a Standard Deviation of 2 and a R-squared of 26.13.
VWO’s Mean Return is 0.26 points higher than that of IGSB and its R-squared is 55.56 points higher. With a Standard Deviation of 17.64, VWO is slightly more volatile than IGSB. The Alpha and Beta of VWO are 2.05 points lower and 0.72 points higher than IGSB’s Alpha and Beta.
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Performance
Annual Returns
| Year | VWO | IGSB |
| 2020 | 15.32% | 5.26% |
| 2019 | 20.4% | 7.01% |
| 2018 | -14.57% | 1.34% |
| 2017 | 31.38% | 1.41% |
| 2016 | 11.75% | 1.77% |
| 2015 | -15.35% | 0.7% |
| 2014 | 0.6% | 0.74% |
| 2013 | -5.0% | 1.03% |
| 2012 | 18.84% | 3.28% |
| 2011 | -18.68% | 1.34% |
| 2010 | 18.99% | 3.69% |
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 IGSB, returning 7.01% on an annual basis. The poorest year for IGSB in the last ten years was 2015, with a yield of 0.7%. Most years the iShares 1-5 Year Investment Grade Corporate Bond ETF has given investors modest returns, such as in 2011, 2017, and 2016, when gains were 1.34%, 1.41%, and 1.77% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VWO | $10,000 | $16,200 | 5.79% |
| IGSB | $10,000 | $13,103 | 2.51% |
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 IGSB, the end total would have been $13,103. This equates to a $3,103 profit over 11 years and a compound annual growth rate (CAGR) of 2.51%.
VWO’s CAGR is 3.28 percentage points higher than that of IGSB and as a result, would have yielded $3,097 more on a $10,000 investment. Thus, VWO outperformed IGSB by 3.28% annually.
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