The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and VCSH is a Vanguard Short-Term Bond fund. So, what’s the difference between VWO and VCSH? And which fund is better?
The expense ratio of VWO is 0.05 percentage points higher than VCSH’s (0.1% vs. 0.05%). VWO also has a high exposure to the financial services sector while VCSH is mostly comprised of BBB bonds. Overall, VWO has provided higher returns than VCSH over the past ten years.
In this article, we’ll compare VWO vs. VCSH. We’ll look at fund composition and risk metrics, as well as at their portfolio growth and industry exposure. Moreover, I’ll also discuss VWO’s and VCSH’s annual returns, holdings, and performance and examine how these affect their overall returns.
Summary
| VWO | VCSH | |
| Name | Vanguard FTSE Emerging Markets Index Fund ETF Shares | Vanguard Short-Term Corporate Bond Index Fund ETF Shares |
| Category | Diversified Emerging Mkts | Short-Term Bond |
| Issuer | Vanguard | Vanguard |
| AUM | 117.28B | 47.88B |
| Avg. Return | 5.79% | 3.12% |
| Div. Yield | 1.98% | 1.89% |
| Expense Ratio | 0.1% | 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 Short-Term Corporate Bond Index Fund ETF Shares (VCSH) is a Short-Term Bond fund that is issued by Vanguard. It currently has 47.88B total assets under management and has yielded an average annual return of 3.12% over the past 10 years. The fund has a dividend yield of 1.89% with an expense ratio of 0.05%.
VWO’s dividend yield is 0.09% higher than that of VCSH (1.98% vs. 1.89%). Also, VWO yielded on average 2.67% more per year over the past decade (5.79% vs. 3.12%). The expense ratio of VWO is 0.05 percentage points higher than VCSH’s (0.1% vs. 0.05%).
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%.
| VCSH Bond Sectors | Weight |
| BBB | 47.49% |
| A | 43.06% |
| AA | 8.45% |
| AAA | 0.95% |
| Below B | 0.03% |
| Others | 0.02% |
| B | 0.0% |
| BB | 0.0% |
| US Government | 0.0% |
VCSH’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and Below B at 47.49%, 43.06%, 8.45%, 0.95%, and 0.03%. The fund is less weighted towards Others (0.02%), B (0.0%), and BB (0.0%) rated bonds.
Risk Analysis
| VWO | VCSH | |
| Mean Return | 0.45 | 0.24 |
| R-squared | 81.69 | 37.53 |
| Std. Deviation | 17.64 | 2.34 |
| Alpha | -1.36 | 0.93 |
| Beta | 1.06 | 0.48 |
| Sharpe Ratio | 0.27 | 0.97 |
| Treynor Ratio | 3.14 | 4.75 |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Beta of 1.06 with a Mean Return of 0.45 and a Treynor Ratio of 3.14. Its Sharpe Ratio is 0.27 while VWO’s Standard Deviation is 17.64. Furthermore, the fund has a Alpha of -1.36 and a R-squared of 81.69.
The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) has a Mean Return of 0.24 with a Alpha of 0.93 and a R-squared of 37.53. Its Standard Deviation is 2.34 while VCSH’s Treynor Ratio is 4.75. Furthermore, the fund has a Sharpe Ratio of 0.97 and a Beta of 0.48.
VWO’s Mean Return is 0.21 points higher than that of VCSH and its R-squared is 44.16 points higher. With a Standard Deviation of 17.64, VWO is slightly more volatile than VCSH. The Alpha and Beta of VWO are 2.29 points lower and 0.58 points higher than VCSH’s Alpha and Beta.
Performance
Annual Returns
| Year | VWO | VCSH |
| 2020 | 15.32% | 5.08% |
| 2019 | 20.4% | 6.85% |
| 2018 | -14.57% | 0.91% |
| 2017 | 31.38% | 2.45% |
| 2016 | 11.75% | 2.63% |
| 2015 | -15.35% | 1.25% |
| 2014 | 0.6% | 1.96% |
| 2013 | -5.0% | 1.37% |
| 2012 | 18.84% | 5.74% |
| 2011 | -18.68% | 2.94% |
| 2010 | 18.99% | 5.51% |
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 VCSH, returning 6.85% on an annual basis. The poorest year for VCSH in the last ten years was 2018, with a yield of 0.91%. Most years the Vanguard Short-Term Corporate Bond Index Fund ETF Shares has given investors modest returns, such as in 2017, 2016, and 2011, when gains were 2.45%, 2.63%, and 2.94% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VWO | $10,000 | $13,615 | 5.79% |
| VCSH | $10,000 | $13,569 | 3.12% |
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 VCSH, the end total would have been $13,569. This equates to a $3,569 profit over 10 years and a compound annual growth rate (CAGR) of 3.12%.
VWO’s CAGR is 2.67 percentage points higher than that of VCSH and as a result, would have yielded $46 more on a $10,000 investment. Thus, VWO outperformed VCSH by 2.67% annually.
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