The Vanguard Total International Stock ETF (VXUS) Offers Broader Global Exposure Than the iShares MSCI Emerging Markets ETF (EEM)

The Vanguard Total International Stock ETF (NASDAQ:VXUS) and the iShares MSCI Emerging Markets ETF (NYSEMKT:EEM) differ sharply on cost, market coverage, and risk: VXUS offers lower fees and broader international diversification, while EEM targets only emerging markets at a significantly higher expense.

VXUS aims to track the FTSE Global All Cap ex US Index, giving investors exposure to thousands of developed and emerging market stocks outside the United States. In contrast, EEM focuses specifically on large- and mid-cap companies from emerging economies. This comparison explores which approach may appeal depending on your goals for international equity exposure.

Snapshot (cost & size)

The 1-yr return represents total return over the trailing 12 months.

EEM’s expense ratio is more than 14 times higher than VXUS, making VXUS considerably more affordable for long-term investors. VXUS also provides a higher dividend yield, which may appeal to those seeking more income from their international allocation.

Performance & risk comparison

What's inside

EEM holds around 1,200 stocks and has existed for nearly 23 years, providing targeted access to emerging market equities. Its sector mix leans heavily on technology (28%), financial services (22%), and consumer cyclicals (12%). Top positions include Taiwan Semiconductor Manufacturing (NYSE:TSM) at 12.39%, Samsung Electronics Ltd (OTC:SSNL.F) at 4.71%, and Tencent Holdings Ltd (OTC:TCEHY) at 4.43%, exposing investors to a concentrated group of Asian tech and internet giants.

VXUS, by comparison, holds over 8,600 stocks across both developed and emerging markets, with more balanced sector exposure: financial services (23%), industrials (16%), and technology (15%). Its largest positions — Taiwan Semiconductor Manufacturing Co Ltd, Tencent Holdings Ltd, and ASML Holding NV (NASDAQ:ASML) — are much less dominant in the portfolio, reflecting broader diversification and less single-name risk.

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

What this means for investors

A strong cost advantage for the Vanguard Total International Stock ETF hasn’t helped it outperform the Vanguard Total International Stock ETF over the past 12 months. The iShares MSCI Emerging Markets ETF has gained 39.8% over the past year compared to a slightly less satisfying gain of 31.9% for the Vanguard Total International Stock ETF.

Over the long run, the Vanguard Total International Stock ETF’s cost advantage and broader diversification led to a much better total return. If we include dividends received over the past five years, folks who invested in VXUS have realized a 52.1% total return. The iShares MSCI Emerging Markets ETF produced a far less satisfying 21.2% total return over the same time frame.

In addition to a lower long-term return, the iShares MSCI Emerging Markets ETF is riskier. It looks like a lack of exposure to developed markets was responsible for a 39.8% drawdown in late 2022. Cautious investors are probably better off choosing the Vanguard Total International Stock ETF.

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Taiwan Semiconductor Manufacturing, Tencent, and Vanguard Total International Stock ETF. The Motley Fool has a disclosure policy.