The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the Vanguard Mid-Cap Index Fund ETF Shares (VO) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and VO is a Vanguard Mid-Cap Blend fund. So, what’s the difference between VWO and VO? And which fund is better?
The expense ratio of VWO is 0.06 percentage points higher than VO’s (0.1% vs. 0.04%). VWO also has a higher exposure to the financial services sector and a higher standard deviation. Overall, VWO has provided lower returns than VO over the past ten years.
In this article, we’ll compare VWO vs. VO. We’ll look at fund composition and risk metrics, as well as at their annual returns and performance. Moreover, I’ll also discuss VWO’s and VO’s industry exposure, holdings, and portfolio growth and examine how these affect their overall returns.
Summary
| VWO | VO | |
| Name | Vanguard FTSE Emerging Markets Index Fund ETF Shares | Vanguard Mid-Cap Index Fund ETF Shares |
| Category | Diversified Emerging Mkts | Mid-Cap Blend |
| Issuer | Vanguard | Vanguard |
| AUM | 117.28B | 154.08B |
| Avg. Return | 5.79% | 14.34% |
| Div. Yield | 1.98% | 1.23% |
| Expense Ratio | 0.1% | 0.04% |
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 Mid-Cap Index Fund ETF Shares (VO) is a Mid-Cap Blend fund that is issued by Vanguard. It currently has 154.08B total assets under management and has yielded an average annual return of 14.34% over the past 10 years. The fund has a dividend yield of 1.23% with an expense ratio of 0.04%.
VWO’s dividend yield is 0.75% higher than that of VO (1.98% vs. 1.23%). Also, VWO yielded on average 8.55% less per year over the past decade (5.79% vs. 14.34%). The expense ratio of VWO is 0.06 percentage points higher than VO’s (0.1% vs. 0.04%).
Fund Composition
Industry Exposure
| VWO | VO | |
| Technology | 17.06% | 22.01% |
| Industrials | 5.95% | 11.92% |
| Energy | 5.48% | 3.82% |
| Communication Services | 11.41% | 5.61% |
| Utilities | 2.55% | 5.12% |
| Healthcare | 5.33% | 13.03% |
| Consumer Defensive | 5.87% | 3.25% |
| Real Estate | 3.13% | 8.67% |
| Financial Services | 18.15% | 11.08% |
| Consumer Cyclical | 16.1% | 12.12% |
| Basic Materials | 8.98% | 3.36% |
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 Mid-Cap Index Fund ETF Shares (VO) has the most exposure to the Technology sector at 22.01%. This is followed by Healthcare and Consumer Cyclical at 13.03% and 12.12% respectively. Basic Materials (3.36%), Energy (3.82%), and Utilities (5.12%) only make up 12.30% of the fund’s total assets.
VO’s mid-section with moderate exposure is comprised of Communication Services, Real Estate, Financial Services, Industrials, and Consumer Cyclical stocks at 5.61%, 8.67%, 11.08%, 11.92%, and 12.12%.
VWO is 7.07% more exposed to the Financial Services sector than VO (18.15% vs 11.08%). VWO’s exposure to Technology and Consumer Cyclical stocks is 4.95% lower and 3.98% higher respectively (17.06% vs. 22.01% and 16.1% vs. 12.12%). In total, Real Estate, Healthcare, and Energy also make up 11.58% less of the fund’s holdings compared to VO (13.94% vs. 25.52%).
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%.
| VO Holdings | Weight |
| IDEXX Laboratories Inc | 0.78% |
| DocuSign Inc | 0.75% |
| Marvell Technology Inc | 0.68% |
| IQVIA Holdings Inc | 0.68% |
| Chipotle Mexican Grill Inc | 0.63% |
| Veeva Systems Inc Class A | 0.62% |
| Digital Realty Trust Inc | 0.62% |
| Centene Corp | 0.62% |
| Aptiv PLC | 0.62% |
| Carrier Global Corp Ordinary Shares | 0.61% |
VO’s Top Holdings are IDEXX Laboratories Inc, DocuSign Inc, Marvell Technology Inc, IQVIA Holdings Inc, and Chipotle Mexican Grill Inc at 0.78%, 0.75%, 0.68%, 0.68%, and 0.63%.
Veeva Systems Inc Class A (0.62%), Digital Realty Trust Inc (0.62%), and Centene Corp (0.62%) have a slightly smaller but still significant weight. Aptiv PLC and Carrier Global Corp Ordinary Shares are also represented in the VO’s holdings at 0.62% and 0.61%.
Risk Analysis
| VWO | VO | |
| Mean Return | 0.45 | 1.14 |
| R-squared | 81.69 | 92.22 |
| Std. Deviation | 17.64 | 15.65 |
| Alpha | -1.36 | -2.71 |
| Beta | 1.06 | 1.11 |
| Sharpe Ratio | 0.27 | 0.83 |
| Treynor Ratio | 3.14 | 11.32 |
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 Alpha of -1.36. Its Mean Return is 0.45 while VWO’s Standard Deviation is 17.64. Furthermore, the fund has a R-squared of 81.69 and a Beta of 1.06.
The Vanguard Mid-Cap Index Fund ETF Shares (VO) has a Beta of 1.11 with a Alpha of -2.71 and a R-squared of 92.22. Its Sharpe Ratio is 0.83 while VO’s Treynor Ratio is 11.32. Furthermore, the fund has a Mean Return of 1.14 and a Standard Deviation of 15.65.
VWO’s Mean Return is 0.69 points lower than that of VO and its R-squared is 10.53 points lower. With a Standard Deviation of 17.64, VWO is slightly more volatile than VO. The Alpha and Beta of VWO are 1.35 points higher and 0.05 points lower than VO’s Alpha and Beta.
Performance
Annual Returns
| Year | VWO | VO |
| 2020 | 15.32% | 18.22% |
| 2019 | 20.4% | 31.04% |
| 2018 | -14.57% | -9.21% |
| 2017 | 31.38% | 19.25% |
| 2016 | 11.75% | 11.23% |
| 2015 | -15.35% | -1.34% |
| 2014 | 0.6% | 13.76% |
| 2013 | -5.0% | 35.15% |
| 2012 | 18.84% | 15.98% |
| 2011 | -18.68% | -1.96% |
| 2010 | 18.99% | 25.57% |
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 2013 was the strongest year for VO, returning 35.15% on an annual basis. The poorest year for VO in the last ten years was 2018, with a yield of -9.21%. Most years the Vanguard Mid-Cap Index Fund ETF Shares has given investors modest returns, such as in 2014, 2012, and 2020, when gains were 13.76%, 15.98%, and 18.22% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VWO | $10,000 | $16,200 | 5.79% |
| VO | $10,000 | $40,404 | 14.34% |
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 VO, the end total would have been $40,404. This equates to a $30,404 profit over 11 years and a compound annual growth rate (CAGR) of 14.34%.
VWO’s CAGR is 8.55 percentage points lower than that of VO and as a result, would have yielded $24,204 less on a $10,000 investment. Thus, VWO performed worse than VO by 8.55% annually.
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