Skip to content

VWO vs. VCIT: What’s The Difference?

The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and VCIT is a Vanguard Corporate Bond fund. So, what’s the difference between VWO and VCIT? And which fund is better?

The expense ratio of VWO is 0.05 percentage points higher than VCIT’s (0.1% vs. 0.05%). VWO also has a high exposure to the financial services sector while VCIT is mostly comprised of BBB bonds. Overall, VWO has provided lower returns than VCIT over the past ten years.

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

TIP: Keep track of all your investments with Personal Capital. I use this amazing tool to aggregate all investments in one place and make sure I'm on track to financial freedom. Oh, and did I mention it's free? Try it out here (link to Personal Capital).

Summary

VWOVCIT
NameVanguard FTSE Emerging Markets Index Fund ETF SharesVanguard Intermediate-Term Corporate Bond Index Fund ETF Shares
CategoryDiversified Emerging MktsCorporate Bond
IssuerVanguardVanguard
AUM117.28B48.39B
Avg. Return5.79%5.84%
Div. Yield1.98%2.33%
Expense Ratio0.1%0.05%

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 Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) is a Corporate Bond fund that is issued by Vanguard. It currently has 48.39B total assets under management and has yielded an average annual return of 5.84% over the past 10 years. The fund has a dividend yield of 2.33% with an expense ratio of 0.05%.

VWO’s dividend yield is 0.35% lower than that of VCIT (1.98% vs. 2.33%). Also, VWO yielded on average 0.05% less per year over the past decade (5.79% vs. 5.84%). The expense ratio of VWO is 0.05 percentage points higher than VCIT’s (0.1% vs. 0.05%).

FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).

Fund Composition

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%.

VCIT - Holdings

VCIT Bond SectorsWeight
BBB55.28%
A37.85%
AA5.22%
AAA1.57%
Below B0.08%
Others0.0%
B0.0%
BB0.0%
US Government0.0%

VCIT’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and Below B at 55.28%, 37.85%, 5.22%, 1.57%, and 0.08%. The fund is less weighted towards Others (0.0%), B (0.0%), and BB (0.0%) rated bonds.

NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).

Risk Analysis

VWOVCIT
Mean Return0.450.44
R-squared81.6963.18
Std. Deviation17.645.08
Alpha-1.360.89
Beta1.061.35
Sharpe Ratio0.270.91
Treynor Ratio3.143.43

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

The Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) has a Treynor Ratio of 3.43 with a Mean Return of 0.44 and a Alpha of 0.89. Its Standard Deviation is 5.08 while VCIT’s Beta is 1.35. Furthermore, the fund has a Sharpe Ratio of 0.91 and a R-squared of 63.18.

VWO’s Mean Return is 0.01 points higher than that of VCIT and its R-squared is 18.51 points higher. With a Standard Deviation of 17.64, VWO is slightly more volatile than VCIT. The Alpha and Beta of VWO are 2.25 points lower and 0.29 points lower than VCIT’s Alpha and Beta.

FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!

Performance

Annual Returns

VWO vs. VCIT - Annual Returns

YearVWOVCIT
202015.32%9.55%
201920.4%13.97%
2018-14.57%-1.75%
201731.38%5.5%
201611.75%5.3%
2015-15.35%0.88%
20140.6%7.47%
2013-5.0%-1.8%
201218.84%11.36%
2011-18.68%7.94%
201018.99%10.65%

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 VCIT, returning 13.97% on an annual basis. The poorest year for VCIT in the last ten years was 2013, with a yield of -1.8%. Most years the Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares has given investors modest returns, such as in 2017, 2014, and 2011, when gains were 5.5%, 7.47%, and 7.94% respectively.

Portfolio Growth

VWO vs. VCIT - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VWO$10,000$13,6155.79%
VCIT$10,000$17,4395.84%

A $10,000 investment in VWO would have resulted in a final balance of $13,615. This is a profit of $3,615 over 10 years and amounts to a compound annual growth rate (CAGR) of 5.79%.

With a $10,000 investment in VCIT, the end total would have been $17,439. This equates to a $7,439 profit over 10 years and a compound annual growth rate (CAGR) of 5.84%.

VWO’s CAGR is 0.05 percentage points lower than that of VCIT and as a result, would have yielded $3,824 less on a $10,000 investment. Thus, VWO performed worse than VCIT by 0.05% annually.


Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!

2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.

5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply

Your email address will not be published.