Vanguard Total World Stock ETF vs FTSE Emerging Markets ETF. Which Global Stock Fund Is the Better Buy??

The Vanguard Total World Stock ETF (NYSEMKT:VT) provides broad global exposure including developed markets, while Vanguard FTSE Emerging Markets ETF (NYSEMKT:VWO) focuses exclusively on high-growth developing economies with a higher distribution yield.

These two Vanguard funds serve as core building blocks for international equity exposure. While VT covers the entire global investable market including the United States, VWO carves out a specific niche in developing nations. Choosing between them depends on your preference for a global solution versus a targeted emerging markets sleeve.

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 based on the closing price of June 26.

Both ETFs are highly efficient with identical 0.06% expense ratios. However, investors seeking higher current income may prefer the Vanguard FTSE Emerging Markets ETF, which offers a significantly higher payout than the global Vanguard Total World Stock ETF.

Performance & risk comparison

What's inside

The Vanguard Total World Stock ETF tracks the FTSE Global All Cap Index, holding 10,024 stocks across developed and emerging markets. Its sector allocation includes technology at 31%, financial services at 15%, and industrials at 11%. Its largest positions include NVIDIA Corp (NASDAQ:NVDA) at 4.2%, Apple Inc (NASDAQ:AAPL) at 3.8%, and Microsoft Corp (NASDAQ:MSFT) at 2.8%. The fund was launched in 2008. Vanguard Total World Stock ETF has paid $2.48 per share over the trailing 12 months, which on its recent $153.95 share price works out to a 1.60% yield.

The Vanguard FTSE Emerging Markets ETF targets developing economies by tracking the FTSE Emerging Markets All Cap China A Inclusion Index. It holds 8,738 stocks, with 32% in technology and 17% in financial services. Its largest positions include Taiwan Semiconductor Manufacturing Co Ltd (TWSE:2330) at 14.69%, Tencent Holdings Ltd (SEHK:700) at 2.75%, and Alibaba Group Holding Ltd (SEHK:9988) at 2.26%. The fund was launched in 2005. Vanguard FTSE Emerging Markets ETF has paid $1.38 per share over the trailing 12 months, which, on its recent $58.58 share price, works out to a 2.40% yield.

Which fund is the better buy?

Both Vanguard funds offers low cost options that have produced nearly identical returns over the past 52 weeks. That they do so at the rock bottom expense ratio of 0.06% is great for long-term investors.

But there are clear differences in strategy. The Vanguard FTSE Emerging Markets ETF — VWO — is about two-thirds in emerging markets, while the Vanguard Total World Stock ETF — VT — is a mirror image, with about two-thirds of its holdings in the U.S. The Total World Stock fund includes emerging markets as part of its strategy, at less than 7% of holdings, with the rest of the developed world making up the balance. The emerging markets ETF is about 37% developed markets outside the U.S., with less than 1% in the U.S. market.

Theoretically, the smaller (in market capitalization) emerging markets should, over the very long term, provide superior growth to the largest markets, including the U.S. In practice, over the past decade, that hasn’t been the case, however. VT has returned 22.1% the past three years, 11.2% in the 5-year look back, and 12.8% in the 10-year. That’s clearly driven by U.S. equities, given that VWO’s 3-, 5-, and 10-year returns are 18.8%, 5.4%, and 9% by comparison.

If you are looking for pure performance history or a one-stop shop for global equities, then the Vanguard Total Stock Market ETF is your choice. However, there is a legitimate argument to be made that a balanced stock portfolio should include holdings that place greater emphasis on non-U.S. markets. In that case, VWO is your pick. In either case, costs and performance show the Vanguard funds are good options for investors.

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

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