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The Vanguard FTSE Emerging Markets ETF (NYSEMKT:VWO) offers a significantly lower expense ratio and broader diversification, while the iShares MSCI Emerging Markets ETF (NYSEMKT:EEM) provides exposure to a different emerging market index with a tighter portfolio.
Investors seeking exposure to the high-growth potential of developing markets often weigh these two heavyweights. Both funds provide a diversified basket of equities from countries like China, Taiwan, and Brazil, yet their underlying indices and cost structures create a distinct divergence in long-term total return and volatility profiles.
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield as of the close of trading on Nov. 10, 2026.
The Vanguard FTSE Emerging Markets ETF is significantly more affordable for long-term holders, featuring an expense ratio that represents just a small fraction of the fee charged by its iShares competitor. Beyond this cost advantage, the Vanguard fund also provides a slightly higher trailing dividend yield for income-focused investors.
The Vanguard FTSE Emerging Markets ETF provides deep exposure to developing economies through a massive portfolio of 6,507 holdings. Its sector allocation is notably weighted toward technology at 34%, financial services at 20%, and consumer cyclical at 9%. The fund's largest positions include Taiwan Semiconductor Manufacturing Co Ltd at 15.7%, Tencent Holdings Ltd at 2.8%, and Alibaba Group Holding Ltd at 2.1%. This fund was launched in 2005. The Vanguard FTSE Emerging Markets ETF has paid $1.22 per share over the trailing 12 months, which on its recent ~$56.5 share price works out to a 2.1% yield.
The iShares MSCI Emerging Markets ETF maintains a more concentrated strategy, holding 1,182 stocks. Its portfolio tilts more aggressively toward technology at 42%, while financial services account for 21% and consumer cyclicals represent 8% of the assets. Top holdings include Taiwan Semiconductor Manufacturing at 15.30%, Samsung Electronics Ltd at 7%, and Sk Hynix at 5.2%. This fund was launched in 2003. The iShares MSCI Emerging Markets ETF has paid $1.11 per share over the trailing 12 months, which on its recent ~$60.6 share price works out to a 1.8% yield.
For more guidance on ETF investing, check out the full guide at this link.
Emerging markets equities are tantalizing investments. Under some investment theories, emerging markets should be the fastest-growing stocks over the long run, although they should also bring greater volatility and risk for those potential returns.
Each of these ETFs is a fine option for gaining exposure to emerging markets, but they have distinct differences that investors should weigh before purchasing.
EEM, the iShares Emerging Markets Fund, is actually roughly evenly divided between emerging market stocks and developed-world, non U.S. stocks. More than 81% of the portfolio is dedicated to Asian stocks, with Taiwan at 27.2% of the portfolio, the largest single country (and most of that is TSMC), followed by mainland China at 20.3%, then South Korea at 17.8%.
EEM is heavily weighted toward large-cap stocks, at 92% of the portfolio, and is roughly evenly divided between growth and value styles. The balance of the portfolio is in mid-caps, evenly split style-wise.
It is surprising that EEM pours more than 35% of its assets into its top 10 holdings, a focus that brings some concentration risk to the portfolio.
Performance-wise, EEM returns an annualized 21.2%, 6.1%, and 6.43% over the past 3-year, 5-year, and 10-year timeframes, respectively.
The Vanguard fund, VWO, is primarily an emerging markets ETF, with nearly 61% of its portfolio in emerging markets equities. Theoretically, those should be growing faster over time compared to more developed markets. But that also comes with more risk, or at least volatility for those holding over the long-term.
Digging into the portfolio, VWO is very much an Asia-focused portfolio, with fully 81% of its portfolio in stocks in the region, divided between developed Asia markets, like Singapore, and developing markets, like the Philippines. Latin America is the second most-weighted region, with about 7.5% of assets in the region.
VWO is also a large-cap-leaning fund, with more than 80% of the portfolio in large caps, with a bit of a tilt toward growth stocks over value. For a fund holding so many stocks, it is surprisingly heavy in its top 10, with more than a quarter of its assets dedicated to its top 10.
VWO provides investors with decent returns, historically returning 16.7%, 5%, and 6.9% over the 3-year, 5-year, and 10-year lookbacks.
Based solely on returns, EEM is the better ETF for investors to consider, even with its notably higher expense ratio.
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Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard FTSE Emerging Markets ETF. The Motley Fool has a disclosure policy.
Does Vanguard or iShares Have the Better Emerging Markets ETF? was originally published by The Motley Fool
