The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between VWO and VMBS? And which fund is better?
The expense ratio of VWO is 0.05 percentage points higher than VMBS’s (0.1% vs. 0.05%). VWO also has a high exposure to the financial services sector while VMBS is mostly comprised of AAA bonds. Overall, VWO has provided higher returns than VMBS over the past ten years.
In this article, we’ll compare VWO vs. VMBS. We’ll look at risk metrics and holdings, as well as at their annual returns and fund composition. Moreover, I’ll also discuss VWO’s and VMBS’s performance, portfolio growth, and industry exposure and examine how these affect their overall returns.
|Name||Vanguard FTSE Emerging Markets Index Fund ETF Shares||Vanguard Mortgage-Backed Securities Index Fund ETF Shares|
|Category||Diversified Emerging Mkts||Intermediate 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 Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) is a Intermediate Government fund that is issued by Vanguard. It currently has 16.61B total assets under management and has yielded an average annual return of 2.89% over the past 10 years. The fund has a dividend yield of 1.23% with an expense ratio of 0.05%.
VWO’s dividend yield is 0.75% higher than that of VMBS (1.98% vs. 1.23%). Also, VWO yielded on average 2.90% more per year over the past decade (5.79% vs. 2.89%). The expense ratio of VWO is 0.05 percentage points higher than VMBS’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%.
|VMBS Bond Sectors||Weight|
VMBS’s Top Bond Sectors are ratings of AAA, Below B, B, BB, and BBB at 100.01%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.
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The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Standard Deviation of 17.64 with a Sharpe Ratio of 0.27 and a R-squared of 81.69. Its Beta is 1.06 while VWO’s Treynor Ratio is 3.14. Furthermore, the fund has a Mean Return of 0.45 and a Alpha of -1.36.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Standard Deviation of 2.02 with a R-squared of 65.78 and a Sharpe Ratio of 0.94. Its Beta is 0.54 while VMBS’s Mean Return is 0.21. Furthermore, the fund has a Alpha of 0.37 and a Treynor Ratio of 3.47.
VWO’s Mean Return is 0.24 points higher than that of VMBS and its R-squared is 15.91 points higher. With a Standard Deviation of 17.64, VWO is slightly more volatile than VMBS. The Alpha and Beta of VWO are 1.73 points lower and 0.52 points higher than VMBS’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 VMBS, returning 6.17% on an annual basis. The poorest year for VMBS in the last ten years was 2013, with a yield of -1.28%. Most years the Vanguard Mortgage-Backed Securities Index Fund ETF Shares has given investors modest returns, such as in 2017, 2012, and 2020, when gains were 2.37%, 2.47%, and 3.77% 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 VMBS, the end total would have been $13,265. This equates to a $3,265 profit over 10 years and a compound annual growth rate (CAGR) of 2.89%.
VWO’s CAGR is 2.90 percentage points higher than that of VMBS and as a result, would have yielded $350 more on a $10,000 investment. Thus, VWO outperformed VMBS by 2.90% annually.
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