The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the iShares Russell 2000 ETF (IWM) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and IWM is a iShares Small Blend fund. So, what’s the difference between VWO and IWM? And which fund is better?
The expense ratio of VWO is 0.09 percentage points lower than IWM’s (0.1% vs. 0.19%). VWO also has a higher exposure to the financial services sector and a lower standard deviation. Overall, VWO has provided lower returns than IWM over the past ten years.
In this article, we’ll compare VWO vs. IWM. We’ll look at industry exposure and performance, as well as at their annual returns and holdings. Moreover, I’ll also discuss VWO’s and IWM’s portfolio growth, fund composition, and risk metrics and examine how these affect their overall returns.
Summary
| VWO | IWM | |
| Name | Vanguard FTSE Emerging Markets Index Fund ETF Shares | iShares Russell 2000 ETF |
| Category | Diversified Emerging Mkts | Small Blend |
| Issuer | Vanguard | iShares |
| AUM | 117.28B | 66.48B |
| Avg. Return | 5.79% | 13.52% |
| Div. Yield | 1.98% | 0.86% |
| Expense Ratio | 0.1% | 0.19% |
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 Russell 2000 ETF (IWM) is a Small Blend fund that is issued by iShares. It currently has 66.48B total assets under management and has yielded an average annual return of 13.52% over the past 10 years. The fund has a dividend yield of 0.86% with an expense ratio of 0.19%.
VWO’s dividend yield is 1.12% higher than that of IWM (1.98% vs. 0.86%). Also, VWO yielded on average 7.73% less per year over the past decade (5.79% vs. 13.52%). The expense ratio of VWO is 0.09 percentage points lower than IWM’s (0.1% vs. 0.19%).
Fund Composition
Industry Exposure
| VWO | IWM | |
| Technology | 17.06% | 14.21% |
| Industrials | 5.95% | 14.78% |
| Energy | 5.48% | 3.74% |
| Communication Services | 11.41% | 3.79% |
| Utilities | 2.55% | 2.44% |
| Healthcare | 5.33% | 20.3% |
| Consumer Defensive | 5.87% | 3.65% |
| Real Estate | 3.13% | 8.59% |
| Financial Services | 18.15% | 13.76% |
| Consumer Cyclical | 16.1% | 10.99% |
| Basic Materials | 8.98% | 3.74% |
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 Russell 2000 ETF (IWM) has the most exposure to the Healthcare sector at 20.3%. This is followed by Industrials and Technology at 14.78% and 14.21% respectively. Consumer Defensive (3.65%), Basic Materials (3.74%), and Energy (3.74%) only make up 11.13% of the fund’s total assets.
IWM’s mid-section with moderate exposure is comprised of Communication Services, Real Estate, Consumer Cyclical, Financial Services, and Technology stocks at 3.79%, 8.59%, 10.99%, 13.76%, and 14.21%.
VWO is 4.39% more exposed to the Financial Services sector than IWM (18.15% vs 13.76%). VWO’s exposure to Technology and Consumer Cyclical stocks is 2.85% higher and 5.11% higher respectively (17.06% vs. 14.21% and 16.1% vs. 10.99%). In total, Real Estate, Healthcare, and Energy also make up 18.69% less of the fund’s holdings compared to IWM (13.94% vs. 32.63%).
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%.
| IWM Holdings | Weight |
| AMC Entertainment Holdings Inc Class A | 0.52% |
| Intellia Therapeutics Inc | 0.33% |
| Crocs Inc | 0.3% |
| BlackRock Cash Funds Treasury SL Agency | 0.29% |
| Tenet Healthcare Corp | 0.26% |
| Lattice Semiconductor Corp | 0.26% |
| Tetra Tech Inc | 0.25% |
| II-VI Inc | 0.25% |
| EastGroup Properties Inc | 0.24% |
| Arrowhead Pharmaceuticals Inc | 0.24% |
IWM’s Top Holdings are AMC Entertainment Holdings Inc Class A, Intellia Therapeutics Inc, Crocs Inc, BlackRock Cash Funds Treasury SL Agency, and Tenet Healthcare Corp at 0.52%, 0.33%, 0.3%, 0.29%, and 0.26%.
Lattice Semiconductor Corp (0.26%), Tetra Tech Inc (0.25%), and II-VI Inc (0.25%) have a slightly smaller but still significant weight. EastGroup Properties Inc and Arrowhead Pharmaceuticals Inc are also represented in the IWM’s holdings at 0.24% and 0.24%.
Risk Analysis
| VWO | IWM | |
| Mean Return | 0.45 | 1.12 |
| R-squared | 81.69 | 77.73 |
| Std. Deviation | 17.64 | 18.87 |
| Alpha | -1.36 | -5.12 |
| Beta | 1.06 | 1.23 |
| Sharpe Ratio | 0.27 | 0.68 |
| Treynor Ratio | 3.14 | 9.56 |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Beta of 1.06 with a Sharpe Ratio of 0.27 and a Standard Deviation of 17.64. Its R-squared is 81.69 while VWO’s Treynor Ratio is 3.14. Furthermore, the fund has a Mean Return of 0.45 and a Alpha of -1.36.
The iShares Russell 2000 ETF (IWM) has a Alpha of -5.12 with a Treynor Ratio of 9.56 and a Standard Deviation of 18.87. Its Mean Return is 1.12 while IWM’s Beta is 1.23. Furthermore, the fund has a R-squared of 77.73 and a Sharpe Ratio of 0.68.
VWO’s Mean Return is 0.67 points lower than that of IWM and its R-squared is 3.96 points higher. With a Standard Deviation of 17.64, VWO is slightly less volatile than IWM. The Alpha and Beta of VWO are 3.76 points higher and 0.17 points lower than IWM’s Alpha and Beta.
Performance
Annual Returns
| Year | VWO | IWM |
| 2020 | 15.32% | 19.89% |
| 2019 | 20.4% | 25.42% |
| 2018 | -14.57% | -11.02% |
| 2017 | 31.38% | 14.66% |
| 2016 | 11.75% | 21.36% |
| 2015 | -15.35% | -4.33% |
| 2014 | 0.6% | 4.94% |
| 2013 | -5.0% | 38.85% |
| 2012 | 18.84% | 16.39% |
| 2011 | -18.68% | -4.19% |
| 2010 | 18.99% | 26.76% |
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 2013 was the strongest year for IWM, returning 38.85% on an annual basis. The poorest year for IWM in the last ten years was 2018, with a yield of -11.02%. Most years the iShares Russell 2000 ETF has given investors modest returns, such as in 2017, 2012, and 2020, when gains were 14.66%, 16.39%, and 19.89% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VWO | $10,000 | $16,200 | 5.79% |
| IWM | $10,000 | $36,686 | 13.52% |
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 IWM, the end total would have been $36,686. This equates to a $26,686 profit over 11 years and a compound annual growth rate (CAGR) of 13.52%.
VWO’s CAGR is 7.73 percentage points lower than that of IWM and as a result, would have yielded $20,486 less on a $10,000 investment. Thus, VWO performed worse than IWM by 7.73% annually.
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