Vanguard Fund Battle: Is The FTSE Developed Markets ETF Better than the FTSE Emerging Markets ETF?

Choosing between Vanguard FTSE Developed Markets ETF (NYSEMKT:VEA) and Vanguard FTSE Emerging Markets ETF (NYSEMKT:VWO) involves deciding whether to prioritize the relative stability of established international markets or the higher growth potential found in developing economies.

International diversification often follows two distinct paths. Vanguard FTSE Developed Markets ETF offers exposure to mature economies like Canada, major European nations, and the Pacific region. Conversely, the Vanguard FTSE Emerging Markets ETF provides access to rapidly growing nations such as China, Brazil, and Taiwan. Both funds allow investors to move beyond U.S. borders, though they capture different stages of global economic development.

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 of the closing price of June 26.

The developed markets fund is more affordable, featuring an expense ratio of only 0.03% compared to 0.06% for its emerging markets counterpart. Both funds manage substantial assets under management (AUM) exceeding $150 billion, which typically supports high liquidity and low trading costs. Additionally, the developed markets fund currently offers a slightly higher trailing dividend yield.

Performance & risk comparison

What's inside

The Vanguard FTSE Developed Markets ETF maintains 3,881 holdings with its largest sector allocations in financial services (22.6%), industrials (18.4%), and technology (16.8%). It tracks the FTSE Developed All Cap ex U.S. Index. Its largest positions include Samsung Electronics Co Ltd (KOSE:A005930) at 3.01%, SK Hynix Inc (KOSE:A000660) at 2.57%, and ASML Holding NV (NASDAQ:ASML) at 1.91%. It was launched in 2007. The fund has paid $1.81 per share over the trailing 12 months, which, on its recent ~$71 share price, works out to a 2.60% yield.

Vanguard FTSE Emerging Markets ETF is broader with 6,348 holdings and a significant concentration in technology (32.8%) and financial services (19%), and Consumer Cyclical (9.9%). It tracks the FTSE Emerging Markets All Cap China A Inclusion Index. Its top holdings 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%. It was launched in 2005. The fund has paid $1.38 per share over the trailing 12 months, which, on its recent ~$59 share price, works out to a 2.40% yield.

Which fund is the better buy?

Both Vanguard funds are similar in some ways. Each ETF has 79% of its holdings in large-cap stocks, with value large caps the largest. Both have less than 1% of holdings in the U.S. markets, so they provide the geographic diversification many American investors could use. That they are low-cost funds makes them appealing for long-term investors who should be aware of the impact high expenses have on returns over time.

But there are key differences. The primary difference is where the funds invest their assets.

The Vanguard FTSE Emerging Markets ETF is about two-thirds invested in emerging markets, and one-third in developed, non-U.S. markets. The Vanguard FTSE Developed Markets ETF is nearly all (more than 98%) in non-U.S. developed markets. That difference means VWO should be more volatile but should also, theoretically, provide better returns over the long term.

In reality, at least over the past decade, the Vanguard FTSE Developed Markets ETF has been the better performer, returning annualized rates of 21%, 9.9%, and 10.3% over the 3-, 5-, and 10-year time frames.

By comparison, VWO has returned 18.8%, 5.4%, and 9% over the 3-, 5-, and 10-year look-backs. That’s good, but not as good as its Vanguard sibling.
For investors seeking a Vanguard fund that offers geographic diversification at low cost and strong returns, VEA is the choice for 2026.

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 ASML, Tencent, Vanguard FTSE Developed Markets ETF, and Vanguard FTSE Emerging Markets ETF. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.