Which Is the Better International ETF, Vanguard's VEA Targeting Developed Markets or Schwab's Emerging Markets-Focused SCHE?

The Vanguard FTSE Developed Markets ETF (NYSEMKT:VEA) provides exposure to established international economies at a lower cost, while the Schwab Emerging Markets Equity ETF (NYSEMKT:SCHE) targets higher-growth developing nations with different sector weights.

Investors looking for international diversification often weigh the merits of established versus developing economies. VEA and SCHE represent these two distinct strategies. While VEA focuses on mature markets such as Europe and the Pacific region, SCHE targets the growth potential of emerging nations, including China and India.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The Vanguard fund is the more cost-effective option with an expense ratio of 0.03%, compared to 0.06% for the Schwab fund. Both ETFs currently offer an identical trailing-12-month distribution yield of 2.7%.

Performance & risk comparison

What's inside

The Vanguard FTSE Developed Markets ETF tracks 3,873 stocks from established economies outside the U.S. Its sector allocation is led by financial services at 23%, industrials at 19%, and technology at 14%. Its largest positions include Samsung Electronics at 3.01%, SK Hynix at 2.57%, and ASML at 1.91%. Launched in 2007, it has paid $1.88 per share over the trailing 12 months.

In contrast, the Schwab Emerging Markets Equity ETF manages a portfolio of 2,207 holdings concentrated in developing markets. The fund has a heavy tilt toward technology at 34%, followed by financial services at 20% and consumer cyclical at 10%. Its largest positions include Taiwan Semiconductor Manufacturing at 16.68%, Tencent Holdings at 3.44%, and Alibaba Group at 2.36%. Launched in 2010, the Schwab fund has a trailing-12-month dividend of $0.94 per share.

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What this means for investors

Investors looking to add international stocks to a U.S.-centric portfolio may want to consider the Vanguard FTSE Developed Markets ETF (VEA) and the Schwab Emerging Markets Equity ETF (SCHE). It makes sense to invest in both funds, since they capture different slices of the global economy. That said, if you had to choose between the two, deciding which is better depends on a few key factors.

VEA offers high stability since it focuses on developed markets. Even though Samsung is its top stock, nearly half its holdings are in Europe. This contributed to the fund’s lower max drawdown.

VEA also has a far larger AUM, which boosts liquidity. Consequently, the ETF can deliver tighter bid-ask spreads, reducing costs on every transaction. It also holds more equities, providing greater diversification.

Since SCHE targets emerging markets, it offers greater growth potential. That is the fund’s primary allure, but it comes with higher volatility. China represents 31% of its holdings, which injects a heightened level of geopolitical risk, particularly given the country’s history with the U.S., such as recent tariff tensions.

VEA is the better choice for conservative investors who want to add low-risk international stocks. SCHE is for those who want the larger growth potential afforded by emerging markets.

Robert Izquierdo has positions in ASML, Alibaba Group, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends ASML, Taiwan Semiconductor Manufacturing, Tencent, and Vanguard FTSE Developed Markets ETF. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.