The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the iShares 20+ Year Treasury Bond ETF (TLT) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and TLT is a iShares Long Government fund. So, what’s the difference between VWO and TLT? And which fund is better?
The expense ratio of VWO is 0.05 percentage points lower than TLT’s (0.1% vs. 0.15%). VWO also has a high exposure to the financial services sector while TLT is mostly comprised of AAA bonds. Overall, VWO has provided lower returns than TLT over the past ten years.
In this article, we’ll compare VWO vs. TLT. We’ll look at risk metrics and annual returns, as well as at their performance and fund composition. Moreover, I’ll also discuss VWO’s and TLT’s portfolio growth, holdings, and industry exposure and examine how these affect their overall returns.
|Name||Vanguard FTSE Emerging Markets Index Fund ETF Shares||iShares 20+ Year Treasury Bond ETF|
|Category||Diversified Emerging Mkts||Long Government|
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 20+ Year Treasury Bond ETF (TLT) is a Long Government fund that is issued by iShares. It currently has 15.15B total assets under management and has yielded an average annual return of 9.00% over the past 10 years. The fund has a dividend yield of 1.5% with an expense ratio of 0.15%.
VWO’s dividend yield is 0.48% higher than that of TLT (1.98% vs. 1.5%). Also, VWO yielded on average 3.21% less per year over the past decade (5.79% vs. 9.00%). The expense ratio of VWO is 0.05 percentage points lower than TLT’s (0.1% vs. 0.15%).
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|Tencent Holdings Ltd||5.29%|
|Alibaba Group Holding Ltd Ordinary Shares||4.73%|
|Taiwan Semiconductor Manufacturing Co Ltd||4.58%|
|Taiwan Semiconductor Manufacturing Co Ltd ADR||1.7%|
|Reliance Industries Ltd Shs Dematerialised||1.06%|
|Naspers Ltd Class N||1.01%|
|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%.
|TLT Bond Sectors||Weight|
TLT’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 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.
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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 Beta of 1.06. Its R-squared is 81.69 while VWO’s Mean Return is 0.45. Furthermore, the fund has a Treynor Ratio of 3.14 and a Standard Deviation of 17.64.
The iShares 20+ Year Treasury Bond ETF (TLT) has a Alpha of -2.83 with a Mean Return of 0.63 and a Beta of 3.54. Its R-squared is 68.76 while TLT’s Standard Deviation is 12.76. Furthermore, the fund has a Sharpe Ratio of 0.55 and a Treynor Ratio of 1.82.
VWO’s Mean Return is 0.18 points lower than that of TLT and its R-squared is 12.93 points higher. With a Standard Deviation of 17.64, VWO is slightly more volatile than TLT. The Alpha and Beta of VWO are 1.47 points higher and 2.48 points lower than TLT’s Alpha and Beta.
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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 2011 was the strongest year for TLT, returning 33.6% on an annual basis. The poorest year for TLT in the last ten years was 2013, with a yield of -13.91%. Most years the iShares 20+ Year Treasury Bond ETF has given investors modest returns, such as in 2012, 2017, and 2010, when gains were 3.25%, 8.92%, and 9.25% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
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 TLT, the end total would have been $23,809. This equates to a $13,809 profit over 11 years and a compound annual growth rate (CAGR) of 9.00%.
VWO’s CAGR is 3.21 percentage points lower than that of TLT and as a result, would have yielded $7,609 less on a $10,000 investment. Thus, VWO performed worse than TLT by 3.21% annually.
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