Investors seeking exposure to large- and mid-cap equities in emerging markets often consider two leading exchange-traded funds (ETFs): Vanguard FTSE Emerging Markets ETF (VWO) and iShares MSCI Emerging Markets ETF (EEM). Both funds focus predominantly on Asian markets with top holdings including prominent companies such as Taiwan Semiconductor Manufacturing and Tencent Holdings. Despite their shared focus, they reveal key differences in fee structures, performance outcomes, portfolio breadth, and risk profiles that impact their suitability for long-term investors.
Cost and Scale Dynamics
One of the most striking differences between VWO and EEM lies in their expense ratios. VWO charges an annual fee of 0.07%, markedly lower than EEM's 0.72%. This cost gap of 65 basis points significantly affects investor returns over time, especially for those with longer horizons. In terms of size, VWO commands a substantially larger asset base, managing approximately $141.2 billion compared to EEM's $20.5 billion. The larger asset pool in VWO contributes to greater liquidity and trading volume, factors generally favorable to investors seeking efficient market access.
Performance and Dividend Yield
Looking at returns over the past year as of December 18, 2025, EEM has posted a total return of 26.8%, outperforming VWO's 19.0%. This notable difference is influenced in part by EEM's inclusion of stocks from South Korea, including Samsung Electronics, which have bolstered its recent gains. By contrast, VWO excludes South Korea from its emerging markets classification. Despite the lag in recent performance, VWO offers a higher dividend yield of 2.8% against EEM's 2.2%, providing a steadier income stream for investors.
Volatility and Risk Considerations
Examining risk through volatility and drawdowns, VWO exhibits a slightly lower beta of 0.88 compared to EEM's 0.99, indicating a somewhat lower volatility in relation to the S&P 500 index. Over a five-year horizon, EEM recorded a maximum drawdown of approximately 39.82%, whereas VWO experienced a less severe peak-to-trough decline of 34.33%. This suggests VWO may offer a marginally less volatile investment experience among emerging markets ETFs.
Portfolio Composition and Geographic Exposure
Both ETFs maintain sector allocations weighted towards technology, financial services, and consumer cyclicals, with technology accounting for roughly 23% of VWO's and 27% of EEM's portfolios. Financial services represent about 21% and 22% respectively, while consumer cyclicals make up roughly 13% in VWO and 12% in EEM. Their share counts differ, however, with VWO encompassing over 2,000 stocks and EEM holding 1,215. The top holdings overlap significantly, featuring Taiwan Semiconductor Manufacturing, Tencent Holdings, and Alibaba Group in VWO, while EEM's leading positions include these plus Samsung Electronics. The presence of Samsung in EEM stems from its inclusion of South Korea, which VWO does not classify as an emerging market. Neither fund employs leverage, currency hedging strategies, or specific environmental, social, and governance (ESG) overlays.
Investor Considerations
When deciding between these two ETFs, investors need to balance cost efficiency, yield, size, volatility, and geographical coverage. EEM's inclusion of South Korean equities has contributed to higher recent returns but also adds concentration in certain regions that may not align with every investor's emerging markets exposure goals. Conversely, VWO's broader stock universe and significantly lower expense ratio position it as a cost-effective option with a slightly better income profile, albeit with lagging performance relative to EEM in the last year.
Ultimately, the choice depends on individual investment priorities such as sensitivity to fees, importance of dividend income, desired regional exposure, and risk tolerance. Investors valuing a broader diversification with lower costs and higher dividend yield may favor VWO, while those seeking recent outperformance with South Korean market participation might consider EEM.
Glossary of Key Terms
- Expense Ratio: The annual percentage fee that a fund charges to cover its operating costs.
- Dividend Yield: The annual dividends paid by a fund divided by its current share price, expressed as a percentage.
- Beta: A measure of a fund's price volatility relative to a benchmark, typically the S&P 500 index.
- Assets Under Management (AUM): The total market value of assets managed by the fund.
- Max Drawdown: The greatest peak-to-trough percentage decline experienced by a fund over a specific period.
- Total Return: The overall return of an investment including capital gains and dividends, assuming reinvestment of distributions.
- Emerging Markets: Economies in transition that are developing and have growing financial markets but are not yet fully mature.
- Sector Tilt: An allocation bias within a fund toward particular industry sectors relative to a benchmark.
- Concentration: The extent to which a fund's assets are focused on a limited number of securities.
- Leverage: The use of borrowed capital to amplify potential investment returns, which also raises risk.
- Currency Hedge: Strategies used to offset exchange rate risk on foreign investments.
- ESG Overlays: Additional selection criteria that incorporate environmental, social, and governance factors into investment decisions.