The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the iShares 1-3 Year Treasury Bond ETF (SHY) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and SHY is a iShares Short Government fund. So, what’s the difference between VWO and SHY? And which fund is better?
The expense ratio of VWO is 0.05 percentage points lower than SHY’s (0.1% vs. 0.15%). VWO also has a high exposure to the financial services sector while SHY is mostly comprised of AAA bonds. Overall, VWO has provided higher returns than SHY over the past ten years.
In this article, we’ll compare VWO vs. SHY. We’ll look at industry exposure and performance, as well as at their fund composition and risk metrics. Moreover, I’ll also discuss VWO’s and SHY’s holdings, portfolio growth, and annual returns and examine how these affect their overall returns.
Summary
| VWO | SHY | |
| Name | Vanguard FTSE Emerging Markets Index Fund ETF Shares | iShares 1-3 Year Treasury Bond ETF |
| Category | Diversified Emerging Mkts | Short Government |
| Issuer | Vanguard | iShares |
| AUM | 117.28B | 19.51B |
| Avg. Return | 5.79% | 1.27% |
| Div. Yield | 1.98% | 0.46% |
| Expense Ratio | 0.1% | 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 1-3 Year Treasury Bond ETF (SHY) is a Short Government fund that is issued by iShares. It currently has 19.51B total assets under management and has yielded an average annual return of 1.27% over the past 10 years. The fund has a dividend yield of 0.46% with an expense ratio of 0.15%.
VWO’s dividend yield is 1.52% higher than that of SHY (1.98% vs. 0.46%). Also, VWO yielded on average 4.52% more per year over the past decade (5.79% vs. 1.27%). The expense ratio of VWO is 0.05 percentage points lower than SHY’s (0.1% vs. 0.15%).
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%.
| SHY Bond Sectors | Weight |
| AAA | 99.67% |
| Others | 0.33% |
| Below B | 0.0% |
| B | 0.0% |
| BB | 0.0% |
| BBB | 0.0% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
SHY’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.67%, 0.33%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.
Risk Analysis
| VWO | SHY | |
| Mean Return | 0.45 | 0.09 |
| R-squared | 81.69 | 39.11 |
| Std. Deviation | 17.64 | 0.89 |
| Alpha | -1.36 | -0.03 |
| Beta | 1.06 | 0.18 |
| Sharpe Ratio | 0.27 | 0.54 |
| Treynor Ratio | 3.14 | 2.6 |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Treynor Ratio of 3.14 with a R-squared of 81.69 and a Beta of 1.06. Its Mean Return is 0.45 while VWO’s Sharpe Ratio is 0.27. Furthermore, the fund has a Alpha of -1.36 and a Standard Deviation of 17.64.
The iShares 1-3 Year Treasury Bond ETF (SHY) has a Sharpe Ratio of 0.54 with a Beta of 0.18 and a R-squared of 39.11. Its Mean Return is 0.09 while SHY’s Treynor Ratio is 2.6. Furthermore, the fund has a Standard Deviation of 0.89 and a Alpha of -0.03.
VWO’s Mean Return is 0.36 points higher than that of SHY and its R-squared is 42.58 points higher. With a Standard Deviation of 17.64, VWO is slightly more volatile than SHY. The Alpha and Beta of VWO are 1.33 points lower and 0.88 points higher than SHY’s Alpha and Beta.
Performance
Annual Returns
| Year | VWO | SHY |
| 2020 | 15.32% | 3.01% |
| 2019 | 20.4% | 3.42% |
| 2018 | -14.57% | 1.45% |
| 2017 | 31.38% | 0.27% |
| 2016 | 11.75% | 0.75% |
| 2015 | -15.35% | 0.43% |
| 2014 | 0.6% | 0.48% |
| 2013 | -5.0% | 0.23% |
| 2012 | 18.84% | 0.31% |
| 2011 | -18.68% | 1.43% |
| 2010 | 18.99% | 2.23% |
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 SHY, returning 3.42% on an annual basis. The poorest year for SHY in the last ten years was 2013, with a yield of 0.23%. Most years the iShares 1-3 Year Treasury Bond ETF has given investors modest returns, such as in 2014, 2016, and 2011, when gains were 0.48%, 0.75%, and 1.43% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VWO | $10,000 | $16,200 | 5.79% |
| SHY | $10,000 | $11,486 | 1.27% |
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 SHY, the end total would have been $11,486. This equates to a $1,486 profit over 11 years and a compound annual growth rate (CAGR) of 1.27%.
VWO’s CAGR is 4.52 percentage points higher than that of SHY and as a result, would have yielded $4,714 more on a $10,000 investment. Thus, VWO outperformed SHY by 4.52% annually.
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