The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and VEU is a Vanguard Foreign Large Blend fund. So, what’s the difference between VWO and VEU? And which fund is better?
The expense ratio of VWO is 0.02 percentage points higher than VEU’s (0.1% vs. 0.08%). VWO also has a lower exposure to the financial services sector and a higher standard deviation. Overall, VWO has provided lower returns than VEU over the past ten years.
In this article, we’ll compare VWO vs. VEU. We’ll look at portfolio growth and risk metrics, as well as at their industry exposure and holdings. Moreover, I’ll also discuss VWO’s and VEU’s annual returns, fund composition, and performance and examine how these affect their overall returns.
Summary
| VWO | VEU | |
| Name | Vanguard FTSE Emerging Markets Index Fund ETF Shares | Vanguard FTSE All-World ex-US Index Fund ETF Shares |
| Category | Diversified Emerging Mkts | Foreign Large Blend |
| Issuer | Vanguard | Vanguard |
| AUM | 117.28B | 53.64B |
| Avg. Return | 5.79% | 6.64% |
| Div. Yield | 1.98% | 2.31% |
| Expense Ratio | 0.1% | 0.08% |
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 FTSE All-World ex-US Index Fund ETF Shares (VEU) is a Foreign Large Blend fund that is issued by Vanguard. It currently has 53.64B total assets under management and has yielded an average annual return of 6.64% over the past 10 years. The fund has a dividend yield of 2.31% with an expense ratio of 0.08%.
VWO’s dividend yield is 0.33% lower than that of VEU (1.98% vs. 2.31%). Also, VWO yielded on average 0.85% less per year over the past decade (5.79% vs. 6.64%). The expense ratio of VWO is 0.02 percentage points higher than VEU’s (0.1% vs. 0.08%).
Fund Composition
Industry Exposure
| VWO | VEU | |
| Technology | 17.06% | 12.94% |
| Industrials | 5.95% | 12.19% |
| Energy | 5.48% | 4.69% |
| Communication Services | 11.41% | 7.44% |
| Utilities | 2.55% | 2.89% |
| Healthcare | 5.33% | 9.34% |
| Consumer Defensive | 5.87% | 8.28% |
| Real Estate | 3.13% | 3.04% |
| Financial Services | 18.15% | 18.46% |
| Consumer Cyclical | 16.1% | 12.57% |
| Basic Materials | 8.98% | 8.17% |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has the most exposure to the Financial Services sector at 18.15%. This is followed by Technology and Consumer Cyclical at 17.06% and 16.1% respectively. Real Estate (3.13%), Healthcare (5.33%), and Energy (5.48%) only make up 13.94% of the fund’s total assets.
VWO’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Basic Materials, Communication Services, and Consumer Cyclical stocks at 5.87%, 5.95%, 8.98%, 11.41%, and 16.1%.
The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) has the most exposure to the Financial Services sector at 18.46%. This is followed by Technology and Consumer Cyclical at 12.94% and 12.57% respectively. Real Estate (3.04%), Energy (4.69%), and Communication Services (7.44%) only make up 15.17% of the fund’s total assets.
VEU’s mid-section with moderate exposure is comprised of Basic Materials, Consumer Defensive, Healthcare, Industrials, and Consumer Cyclical stocks at 8.17%, 8.28%, 9.34%, 12.19%, and 12.57%.
VWO is 0.31% less exposed to the Financial Services sector than VEU (18.15% vs 18.46%). VWO’s exposure to Technology and Consumer Cyclical stocks is 4.12% higher and 3.53% higher respectively (17.06% vs. 12.94% and 16.1% vs. 12.57%). In total, Real Estate, Healthcare, and Energy also make up 3.13% less of the fund’s holdings compared to VEU (13.94% vs. 17.07%).
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%.
| VEU Holdings | Weight |
| Tencent Holdings Ltd | 1.57% |
| Alibaba Group Holding Ltd Ordinary Shares | 1.4% |
| Nestle SA | 1.22% |
| Taiwan Semiconductor Manufacturing Co Ltd | 0.98% |
| ASML Holding NV | 0.95% |
| Taiwan Semiconductor Manufacturing Co Ltd ADR | 0.91% |
| Roche Holding AG | 0.91% |
| Toyota Motor Corp | 0.75% |
| LVMH Moet Hennessy Louis Vuitton SE | 0.68% |
| Novartis AG | 0.67% |
VEU’s Top Holdings are Tencent Holdings Ltd, Alibaba Group Holding Ltd Ordinary Shares, Nestle SA, Taiwan Semiconductor Manufacturing Co Ltd, and ASML Holding NV at 1.57%, 1.4%, 1.22%, 0.98%, and 0.95%.
Taiwan Semiconductor Manufacturing Co Ltd ADR (0.91%), Roche Holding AG (0.91%), and Toyota Motor Corp (0.75%) have a slightly smaller but still significant weight. LVMH Moet Hennessy Louis Vuitton SE and Novartis AG are also represented in the VEU’s holdings at 0.68% and 0.67%.
Risk Analysis
| VWO | VEU | |
| Mean Return | 0.45 | 0.56 |
| R-squared | 81.69 | 98.44 |
| Std. Deviation | 17.64 | 15.08 |
| Alpha | -1.36 | 0.28 |
| Beta | 1.06 | 0.99 |
| Sharpe Ratio | 0.27 | 0.4 |
| Treynor Ratio | 3.14 | 5.12 |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Sharpe Ratio of 0.27 with a Treynor Ratio of 3.14 and a R-squared of 81.69. Its Alpha is -1.36 while VWO’s Beta is 1.06. Furthermore, the fund has a Standard Deviation of 17.64 and a Mean Return of 0.45.
The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) has a R-squared of 98.44 with a Mean Return of 0.56 and a Treynor Ratio of 5.12. Its Sharpe Ratio is 0.4 while VEU’s Beta is 0.99. Furthermore, the fund has a Alpha of 0.28 and a Standard Deviation of 15.08.
VWO’s Mean Return is 0.11 points lower than that of VEU and its R-squared is 16.75 points lower. With a Standard Deviation of 17.64, VWO is slightly more volatile than VEU. The Alpha and Beta of VWO are 1.64 points lower and 0.07 points higher than VEU’s Alpha and Beta.
Performance
Annual Returns
| Year | VWO | VEU |
| 2020 | 15.32% | 11.39% |
| 2019 | 20.4% | 21.63% |
| 2018 | -14.57% | -13.97% |
| 2017 | 31.38% | 27.27% |
| 2016 | 11.75% | 4.77% |
| 2015 | -15.35% | -4.67% |
| 2014 | 0.6% | -4.05% |
| 2013 | -5.0% | 14.5% |
| 2012 | 18.84% | 18.55% |
| 2011 | -18.68% | -14.25% |
| 2010 | 18.99% | 11.85% |
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 2017 was the strongest year for VEU, returning 27.27% on an annual basis. The poorest year for VEU in the last ten years was 2011, with a yield of -14.25%. Most years the Vanguard FTSE All-World ex-US Index Fund ETF Shares has given investors modest returns, such as in 2016, 2020, and 2010, when gains were 4.77%, 11.39%, and 11.85% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VWO | $10,000 | $16,200 | 5.79% |
| VEU | $10,000 | $18,507 | 6.64% |
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 VEU, the end total would have been $18,507. This equates to a $8,507 profit over 11 years and a compound annual growth rate (CAGR) of 6.64%.
VWO’s CAGR is 0.85 percentage points lower than that of VEU and as a result, would have yielded $2,307 less on a $10,000 investment. Thus, VWO performed worse than VEU by 0.85% annually.
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