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.
|Name||Vanguard FTSE Emerging Markets Index Fund ETF Shares||Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares|
|Category||Diversified Emerging Mkts||Corporate Bond|
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%).
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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%.
|VCIT Bond Sectors||Weight|
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.
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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.
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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 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.
|Fund||Initial Balance||Final Balance||CAGR|
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.
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