Vanguard (VXUS) vs. iShares (EEM): Which ETF Is Better For Investing in Stocks Outside the U.S.?

The Vanguard Total International Stock ETF (NASDAQ:VXUS) and iShares MSCI Emerging Markets ETF (NYSEMKT:EEM) differ most in cost, yield, and market exposure, with EEM focusing on emerging markets and charging a higher fee but offering a more concentrated technology tilt.

Both VXUS and EEM provide access to stocks outside the United States, but their approaches vary. VXUS spreads investments across developed and emerging markets, while EEM focuses on emerging markets and their leading companies. This comparison unpacks how these differences play out in cost, performance, risk, and portfolio construction.

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.

VXUS is much more affordable with a significantly lower expense ratio and offers a higher dividend yield, but EEM has delivered incredible returns over the last year.

Performance & risk comparison

What's inside

EEM is built for investors seeking concentrated exposure to emerging markets, with 1,222 holdings as of its 23rd year. Technology dominates at 32%, followed by financial services and consumer cyclicals. Top positions include Taiwan Semiconductor Manufacturing at nearly 14%, Samsung Electronics, and SK Hynix, resulting in a sizable tilt toward Asian tech giants.

VXUS, by contrast, casts a much wider net with more than 8,600 holdings, spreading assets across both developed and emerging economies. Its largest sector weights are financial services, industrials, and technology, and its top holdings -- Taiwan Semiconductor Manufacturing, Samsung Electronics, and ASML -- show similar names, but at much lower concentrations, supporting broader diversification.

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What this means for investors

Since 2011, VXUS and EEM have delivered annualized total returns of 6.7% and 4.2%, respectively, highlighting the former’s track record of relative outperformance. Buoyed by an expense ratio that is .67 percentage points lower and a dividend yield that is nearly one percent higher (currently), VXUS has not only been the better compounder, but did so with a smaller 5-year drawdown.

I could only look to buy VXUS personally, especially since the two ex-U.S. ETFs already overlap in two of their top three holdings. Furthermore, while EEM has over 1,200 holdings, it allocates 14% to Taiwan Semiconductor Manufacturing. While TSM may be one of the most important companies of our time, it has very high geopolitical risk, which makes EEM riskier than advertised, in my opinion. Meanwhile, TSM is also VXUS’s top holding, but it only accounts for 3.4% of the fund. Rounded out by an additional 8,000-plus other foreign holdings, VXUS also seems to offer much better diversification.

Altogether, VXUS is the clear winner to me thanks to its superior diversification, better long-term performance, cheaper fees, and higher dividend yield. With both ETFs trading at roughly 18 times earnings, I’ll happily pick VXUS.

Josh Kohn-Lindquist has positions in ASML. The Motley Fool has positions in and recommends ASML and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.