The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the iShares Preferred and Income Securities ETF (PFF) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and PFF is a iShares Preferred Stock fund. So, what’s the difference between VWO and PFF? And which fund is better?
The expense ratio of VWO is 0.36 percentage points lower than PFF’s (0.1% vs. 0.46%). VWO also has a higher exposure to the financial services sector and a higher standard deviation. Overall, VWO has provided lower returns than PFF over the past ten years.
In this article, we’ll compare VWO vs. PFF. We’ll look at fund composition and portfolio growth, as well as at their performance and industry exposure. Moreover, I’ll also discuss VWO’s and PFF’s annual returns, risk metrics, and holdings and examine how these affect their overall returns.
Summary
| VWO | PFF | |
| Name | Vanguard FTSE Emerging Markets Index Fund ETF Shares | iShares Preferred and Income Securities ETF |
| Category | Diversified Emerging Mkts | Preferred Stock |
| Issuer | Vanguard | iShares |
| AUM | 117.28B | 19.8B |
| Avg. Return | 5.79% | 6.90% |
| Div. Yield | 1.98% | 4.47% |
| Expense Ratio | 0.1% | 0.46% |
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 Preferred and Income Securities ETF (PFF) is a Preferred Stock fund that is issued by iShares. It currently has 19.8B total assets under management and has yielded an average annual return of 6.90% over the past 10 years. The fund has a dividend yield of 4.47% with an expense ratio of 0.46%.
VWO’s dividend yield is 2.49% lower than that of PFF (1.98% vs. 4.47%). Also, VWO yielded on average 1.11% less per year over the past decade (5.79% vs. 6.90%). The expense ratio of VWO is 0.36 percentage points lower than PFF’s (0.1% vs. 0.46%).
Fund Composition
Industry Exposure
| VWO | PFF | |
| Technology | 17.06% | 0.0% |
| Industrials | 5.95% | 10.27% |
| Energy | 5.48% | 0.0% |
| Communication Services | 11.41% | 0.0% |
| Utilities | 2.55% | 81.81% |
| Healthcare | 5.33% | 3.54% |
| Consumer Defensive | 5.87% | 0.0% |
| Real Estate | 3.13% | 0.65% |
| Financial Services | 18.15% | 0.0% |
| Consumer Cyclical | 16.1% | 0.0% |
| 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 Preferred and Income Securities ETF (PFF) has the most exposure to the Utilities sector at 81.81%. This is followed by Industrials and Basic Materials at 10.27% and 3.74% respectively. Financial Services (0.0%), Consumer Defensive (0.0%), and Communication Services (0.0%) only make up 0.00% of the fund’s total assets.
PFF’s mid-section with moderate exposure is comprised of Energy, Technology, Real Estate, Healthcare, and Basic Materials stocks at 0.0%, 0.0%, 0.65%, 3.54%, and 3.74%.
VWO is 18.15% more exposed to the Financial Services sector than PFF (18.15% vs 0.0%). VWO’s exposure to Technology and Consumer Cyclical stocks is 17.06% higher and 16.10% higher respectively (17.06% vs. 0.0% and 16.1% vs. 0.0%). In total, Real Estate, Healthcare, and Energy also make up 9.75% more of the fund’s holdings compared to PFF (13.94% vs. 4.19%).
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%.
| PFF Holdings | Weight |
| Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A | 2.54% |
| BlackRock Cash Funds Treasury SL Agency | 2.3% |
| Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L- | 1.79% |
| Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L- | 1.49% |
| ArcelorMittal S.A. 5.5% | 1.36% |
| Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A | 1.35% |
| Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B | 1.14% |
| NextEra Energy Inc Unit | 1.12% |
| Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 | 1.08% |
| Avantor Inc Ser A | 0.99% |
PFF’s Top Holdings are Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A, BlackRock Cash Funds Treasury SL Agency, Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L-, Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L-, and ArcelorMittal S.A. 5.5% at 2.54%, 2.3%, 1.79%, 1.49%, and 1.36%.
Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A (1.35%), Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B (1.14%), and NextEra Energy Inc Unit (1.12%) have a slightly smaller but still significant weight. Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 and Avantor Inc Ser A are also represented in the PFF’s holdings at 1.08% and 0.99%.
Risk Analysis
| VWO | PFF | |
| Mean Return | 0.45 | 0.52 |
| R-squared | 81.69 | 9.39 |
| Std. Deviation | 17.64 | 7.87 |
| Alpha | -1.36 | 3.45 |
| Beta | 1.06 | 0.81 |
| Sharpe Ratio | 0.27 | 0.72 |
| Treynor Ratio | 3.14 | 6.79 |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Standard Deviation of 17.64 with a Treynor Ratio of 3.14 and a R-squared of 81.69. Its Beta is 1.06 while VWO’s Alpha is -1.36. Furthermore, the fund has a Sharpe Ratio of 0.27 and a Mean Return of 0.45.
The iShares Preferred and Income Securities ETF (PFF) has a Mean Return of 0.52 with a R-squared of 9.39 and a Standard Deviation of 7.87. Its Treynor Ratio is 6.79 while PFF’s Alpha is 3.45. Furthermore, the fund has a Beta of 0.81 and a Sharpe Ratio of 0.72.
VWO’s Mean Return is 0.07 points lower than that of PFF and its R-squared is 72.30 points higher. With a Standard Deviation of 17.64, VWO is slightly more volatile than PFF. The Alpha and Beta of VWO are 4.81 points lower and 0.25 points higher than PFF’s Alpha and Beta.
Performance
Annual Returns
| Year | VWO | PFF |
| 2020 | 15.32% | 7.94% |
| 2019 | 20.4% | 15.62% |
| 2018 | -14.57% | -4.77% |
| 2017 | 31.38% | 8.33% |
| 2016 | 11.75% | 1.26% |
| 2015 | -15.35% | 4.62% |
| 2014 | 0.6% | 13.45% |
| 2013 | -5.0% | -0.59% |
| 2012 | 18.84% | 18.25% |
| 2011 | -18.68% | -2.2% |
| 2010 | 18.99% | 13.96% |
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 PFF, returning 18.25% on an annual basis. The poorest year for PFF in the last ten years was 2018, with a yield of -4.77%. Most years the iShares Preferred and Income Securities ETF has given investors modest returns, such as in 2015, 2020, and 2017, when gains were 4.62%, 7.94%, and 8.33% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VWO | $10,000 | $16,200 | 5.79% |
| PFF | $10,000 | $20,272 | 6.90% |
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 PFF, the end total would have been $20,272. This equates to a $10,272 profit over 11 years and a compound annual growth rate (CAGR) of 6.90%.
VWO’s CAGR is 1.11 percentage points lower than that of PFF and as a result, would have yielded $4,072 less on a $10,000 investment. Thus, VWO performed worse than PFF by 1.11% annually.
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