This Vanguard ETF Tops Schwab in Returns and Cost for Global Investors

The Vanguard FTSE Developed Markets ETF (NYSEMKT:VEA) provides cost-efficient exposure to established international economies, while the Schwab Emerging Markets Equity ETF (NYSEMKT:SCHE) focuses on the higher growth potential in developing nations.

International diversification allows investors to look beyond U.S. markets, but the choice between developed and emerging markets involves different risk profiles. This analysis compares the ultra-low-cost developed-market approach of VEA with the emerging-market strategy of SCHE to determine which fits a portfolio.

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.

Vanguard FTSE Developed Markets ETF is the more affordable option, with a 0.03% expense ratio, compared to 0.06% for Schwab Emerging Markets Equity ETF. Both funds recently provided a 2.6% yield, offering comparable income levels for investors.

Performance & risk comparison

What's inside

The Vanguard FTSE Developed Markets ETF tracks mature economies outside the U.S., with a concentration in Financial Services at 23%, Industrials at 18%, and Technology at 17%. The fund manages 3,873 holdings, and its largest positions include Samsung Electronics at 2.99%, SK hynix at 2.57%, and ASML at 1.91%. It was launched in 2007. The fund paid $1.81 in dividends per share over the trailing 12 months, which, at its recent ~$71.25 share price, works out to a 2.6% yield.

The Schwab Emerging Markets Equity ETF focuses on developing markets, with a tilt toward Technology (34%), Financial Services (20%), and Consumer Cyclical (10%). The fund manages 2,223 holdings, and its largest positions include Taiwan Semiconductor Manufacturing at 17.33%, Tencent Holdings at 3.23%, and Alibaba Group Holding at 2.04%. It was launched in 2010. Schwab Emerging Markets Equity ETF has paid $0.95 per share over the trailing 12 months, which, at its recent ~$36.26 share price, works out to a 2.6% yield.

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What does this mean for investors?

VEA’s developed-market focus has paid off over the past few years. It has slightly edged SCHE in performance over the past three years, with a more noticeable outperformance over the past five years. This shows VEA’s ability to outperform SCHE in both bull and bear markets.

VEA’s holdings are more concentrated in Europe, accounting for 48% of its current holdings, and in the Pacific region, accounting for 39%. Meanwhile, SCHE is more heavily tilted to stocks in China, Taiwan, and India, with single-digit allocations to Brazil, Mexico, and South Africa, among other emerging markets.

VEA’s holdings are more evenly distributed, with its largest holding making up just 2.99% of the portfolio. SCHE is heavily concentrated in Taiwan Semiconductor, which makes up 17% of its holdings. This introduces an additional layer of risk in a chip stock that investors may not want.

Given its portfolio structure, VEA is the more well-rounded international fund. The fact that it has outperformed SCHE during the tech-driven bull market further supports its status as a top-tier international fund.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard FTSE Developed Markets ETF. The Motley Fool has a disclosure policy.