Here's the Thing iShares' Emerging Markets ETF (IEMG) ETF Has That Vanguard's VWO Doesn't

The Vanguard FTSE Emerging Markets ETF (NYSEMKT:VWO) offers the lowest cost for broad emerging market exposure, while the iShares Core MSCI Emerging Markets ETF (NYSEMKT:IEMG) provides slightly higher yields and stronger recent returns.

Both VWO and IEMG serve as primary vehicles for investors seeking exposure to developing economies like China, Taiwan, and South Korea. While their objectives are similar, differences in their underlying indexes and market-cap weightings lead to distinct performance outcomes and sector concentrations within the emerging markets landscape.

Snapshot (cost & size)

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.

The Vanguard fund remains more affordable with a 0.06% expense ratio. The iShares fund is slightly more expensive at 0.09% but offers a higher payout for income-focused investors who prioritize a greater yield.

Performance & risk comparison

What's inside

iShares Core MSCI Emerging Markets ETF focuses on information technology at 35% of the fund, financials at 20.5%, and consumer discretionary 8.9%. It holds 2,845 securities, and its largest positions include Taiwan Semiconductor Manufacturing at 13.05%, Samsung Electronics at 5.28%, and SK Hynix at 3.74%. The fund was launched in 2012. It has paid $1.80 per share over the trailing 12 months, which on its recent ~$74.38 share price works out to a 2.4% yield.

Vanguard FTSE Emerging Markets ETF leans into technology at 33% of the fund, financial services at 17%, and cash and others 8%. Its portfolio is more expansive with 6,507 holdings, and its largest positions include Taiwan Semiconductor Manufacturing Co Ltd at 15.72%, Tencent Holdings at 2.81%, and Alibaba Group Holding at 2.11%. This fund was launched in 2005. It has paid $1.22 per share over the trailing 12 months, which on its recent ~$55.70 share price works out to a 2.2% yield.

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Which looks like the better buy

Both IEMG and VWO are solid options for investors seeking diversified exposure to emerging markets. They charge similar expense ratios and pay out similar trailing-12-month dividend yields. And they're both heavily weighted toward technology and financial services stocks.

The biggest differentiator between the two funds is South Korea. IEMG includes South Korean companies, including semiconductor and AI powerhouses SK Hynix and Samsung, which together account for nearly 10% of the fund. Overall, South Korea makes up more than 17% of IEMG. When these stocks rally, IEMG outperforms VWO. When geopolitical or economic concerns threaten these companies, IEMG is more susceptible.

VWO's tracking index excludes South Korea, which means the fund doesn't hold shares in any South Korean companies. With AI stocks once again in the spotlight and the future of AI-related spending uncertain, this difference in holdings could lead one fund to outperform the other. Investors looking to avoid exposure to South Korea, or who have exposure to those companies via another investment vehicle, may prefer VWO. Those seeking to capture a wider array of AI and semiconductor companies may be intrigued by IEMG's South Korea exposure.

Sarah Sidlow has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing, Tencent, and Vanguard FTSE Emerging Markets ETF. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.