Schwab Emerging Markets ETF vs iShares MSCI Emerging Markets ETF: Which is the Better Buy?

The Schwab Emerging Markets Equity ETF (NYSEMKT:SCHE) offers a significantly lower expense ratio and higher yield, while the iShares MSCI Emerging Markets ETF (NYSEMKT:EEM) has delivered stronger recent performance with higher historical volatility.

Investors seeking exposure to developing economies often start with these two heavyweights. While Schwab Emerging Markets Equity ETF tracks the FTSE Emerging Index, iShares MSCI Emerging Markets ETF follows the MSCI Emerging Markets Index. The primary choice for many comes down to the trade-off between EEM liquidity and SCHE ultra-low cost structure.

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.

With an expense ratio of 0.06%, the Schwab fund is considerably more affordable than the iShares fund's 0.72% fee. This cost advantage allows investors to keep more of their total return. Additionally, SCHE provides a higher payout with a yield gap of 0.89 percentage points over its competitor.

Performance & risk comparison

What's inside

The Schwab Emerging Markets Equity ETF tracks a broad index of 2,226 holdings. Its sector weights include Technology at 34%, Financial Services at 21%, and Consumer Cyclical at 9%. Its largest positions include Taiwan Semiconductor Manufacturing (2330.TW) at 17.23%, Tencent Holdings (0700.HK) at 3.43%, and Alibaba Group Holding (9988.HK) at 2.43%. It was launched in 2010. Schwab Emerging Markets Equity ETF has paid $0.95 per share over the trailing 12 months, which on its recent ~$36.34 share price works out to a 2.60% yield.

The iShares MSCI Emerging Markets ETF provides more concentrated exposure with 1,223 holdings. Its sector weightings lean toward Technology at 46%, Financial Services at 18%, and Consumer Cyclical at 7%. Top holdings include Taiwan Semiconductor Manufacturing (2330.TW) at 15.57%, Samsung Electronics (005930.KS) at 6.92%, and SK Hynix (000660.KS) at 5.95%. It was launched in 2003. iShares MSCI Emerging Markets ETF has paid $1.11 per share over the trailing 12 months, which on its recent ~$65.57 share price works out to a 1.70% yield.

For more guidance on ETF investing, check out the full guide at this link.

What this means for investors

Emerging markets in general have been one of the hottest portions of the market as investors have rotated out of U.S. large-caps looking to diversify into less expensive areas of the market. But beyond the valuation, emerging markets are also starting to benefit from the AI boom, as AI infrastructure broadens out to smaller companies in various sectors and countries around the world.

But when comparing these two specific ETFs, there is a clear winner — the iShares MSCI Emerging Markets ETF.

While it has fewer holdings, it is still very broad, investing in large- and mid-caps. But the index it tracks is much more heavily weighted in technology stocks with 42% of the portfolio investing in tech stocks, compared to 26% for the Schwab ETF.

The iShares ETF dominates in terms of performance across every time frame. Year-to-date, it is up 20% on a total return basis compared to 11% for the Schwab offering. And over the past year it has returned 37% compared to 22% for the Schwab fund. It also holds the performance edge over the three-, five- and 10-year periods.

It should be noted that the Schwab ETF has a far lower expense ratio, but the iShares ETF’s higher fees are worth it for the outperformance it has exhibited over the years.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.