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VWO vs. QUAL: What’s The Difference?

The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the iShares MSCI USA Quality Factor ETF (QUAL) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and QUAL is a iShares Large Blend fund. So, what’s the difference between VWO and QUAL? And which fund is better?

The expense ratio of VWO is 0.05 percentage points lower than QUAL’s (0.1% vs. 0.15%). VWO also has a higher exposure to the financial services sector and a higher standard deviation. Overall, VWO has provided lower returns than QUAL over the past ten years.

In this article, we’ll compare VWO vs. QUAL. We’ll look at industry exposure and annual returns, as well as at their performance and risk metrics. Moreover, I’ll also discuss VWO’s and QUAL’s fund composition, portfolio growth, and holdings and examine how these affect their overall returns.

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Summary

VWOQUAL
NameVanguard FTSE Emerging Markets Index Fund ETF SharesiShares MSCI USA Quality Factor ETF
CategoryDiversified Emerging MktsLarge Blend
IssuerVanguardiShares
AUM117.28B23.93B
Avg. Return5.79%13.42%
Div. Yield1.98%1.29%
Expense Ratio0.1%0.15%

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 MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.

VWO’s dividend yield is 0.69% higher than that of QUAL (1.98% vs. 1.29%). Also, VWO yielded on average 7.63% less per year over the past decade (5.79% vs. 13.42%). The expense ratio of VWO is 0.05 percentage points lower than QUAL’s (0.1% vs. 0.15%).

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Fund Composition

Industry Exposure

VWO vs. QUAL - Industry Exposure

VWOQUAL
Technology17.06%22.52%
Industrials5.95%9.22%
Energy5.48%2.24%
Communication Services11.41%11.44%
Utilities2.55%2.41%
Healthcare5.33%13.22%
Consumer Defensive5.87%8.57%
Real Estate3.13%2.72%
Financial Services18.15%15.87%
Consumer Cyclical16.1%9.43%
Basic Materials8.98%2.35%

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 MSCI USA Quality Factor ETF (QUAL) has the most exposure to the Technology sector at 22.52%. This is followed by Financial Services and Healthcare at 15.87% and 13.22% respectively. Basic Materials (2.35%), Utilities (2.41%), and Real Estate (2.72%) only make up 7.48% of the fund’s total assets.

QUAL’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Consumer Cyclical, Communication Services, and Healthcare stocks at 8.57%, 9.22%, 9.43%, 11.44%, and 13.22%.

VWO is 2.28% more exposed to the Financial Services sector than QUAL (18.15% vs 15.87%). VWO’s exposure to Technology and Consumer Cyclical stocks is 5.46% lower and 6.67% higher respectively (17.06% vs. 22.52% and 16.1% vs. 9.43%). In total, Real Estate, Healthcare, and Energy also make up 4.24% less of the fund’s holdings compared to QUAL (13.94% vs. 18.18%).

Holdings

VWO - Holdings

VWO HoldingsWeight
Tencent Holdings Ltd5.29%
Alibaba Group Holding Ltd Ordinary Shares4.73%
Taiwan Semiconductor Manufacturing Co Ltd4.58%
Meituan1.88%
Taiwan Semiconductor Manufacturing Co Ltd ADR1.7%
Reliance Industries Ltd Shs Dematerialised1.06%
Naspers Ltd Class N1.01%
Vale SA0.92%
Infosys Ltd0.91%
China Construction Bank Corp Class H0.84%

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%.

QUAL - Holdings

QUAL HoldingsWeight
Facebook Inc Class A4.77%
Nike Inc Class B4.05%
Microsoft Corp3.54%
Apple Inc3.52%
Johnson & Johnson2.99%
BlackRock Inc2.87%
Target Corp2.8%
Mastercard Inc Class A2.72%
NVIDIA Corp2.71%
Alphabet Inc Class A2.49%

QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.

BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.

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Risk Analysis

VWOQUAL
Mean Return0.450
R-squared81.690
Std. Deviation17.640
Alpha-1.360
Beta1.060
Sharpe Ratio0.270
Treynor Ratio3.140

The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a R-squared of 81.69 with a Treynor Ratio of 3.14 and a Mean Return of 0.45. Its Beta is 1.06 while VWO’s Alpha is -1.36. Furthermore, the fund has a Standard Deviation of 17.64 and a Sharpe Ratio of 0.27.

The iShares MSCI USA Quality Factor ETF (QUAL) has a Sharpe Ratio of 0 with a Beta of 0 and a Mean Return of 0. Its Standard Deviation is 0 while QUAL’s Treynor 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 QUAL and its R-squared is 81.69 points higher. With a Standard Deviation of 17.64, VWO is slightly more volatile than QUAL. The Alpha and Beta of VWO are 1.36 points lower and 1.06 points higher than QUAL’s Alpha and Beta.

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Performance

Annual Returns

VWO vs. QUAL - Annual Returns

YearVWOQUAL
202015.32%16.96%
201920.4%34.14%
2018-14.57%-5.77%
201731.38%22.26%
201611.75%9.18%
2015-15.35%5.56%
20140.6%11.62%
2013-5.0%0.0%
201218.84%0.0%
2011-18.68%0.0%
201018.99%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 2019 was the strongest year for QUAL, returning 34.14% on an annual basis. The poorest year for QUAL in the last ten years was 2018, with a yield of -5.77%. Most years the iShares MSCI USA Quality Factor ETF has given investors modest returns, such as in 2010, 2015, and 2016, when gains were 0.0%, 5.56%, and 9.18% respectively.

Portfolio Growth

VWO vs. QUAL - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VWO$10,000$14,8305.79%
QUAL$10,000$23,25113.42%

A $10,000 investment in VWO would have resulted in a final balance of $14,830. This is a profit of $4,830 over 7 years and amounts to a compound annual growth rate (CAGR) of 5.79%.

With a $10,000 investment in QUAL, the end total would have been $23,251. This equates to a $13,251 profit over 7 years and a compound annual growth rate (CAGR) of 13.42%.

VWO’s CAGR is 7.63 percentage points lower than that of QUAL and as a result, would have yielded $8,421 less on a $10,000 investment. Thus, VWO performed worse than QUAL by 7.63% annually.


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