Which Is the Better International ETF, Vanguard's VWO Targeting Emerging Markets or State Street's Climate Change-Focused NZAC?

Investors choosing between the State Street SPDR MSCI ACWI Climate Paris Aligned ETF (NASDAQ:NZAC) and Vanguard FTSE Emerging Markets ETF (NYSEMKT:VWO) are weighing a global strategy focused on climate transition against a low-cost, traditional bet on developing economies.

While both funds provide international equity exposure, their mandates differ significantly. VWO focuses strictly on emerging markets, such as China and Taiwan, to capture growth in developing nations. In contrast, NZAC selects global companies from both developed and emerging markets based on their alignment with climate goals and the reduction of physical climate risks.

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.

With an expense ratio of 0.12%, the State Street fund is twice as expensive as the Vanguard fund, which charges just 0.06%. Additionally, the Vanguard fund currently offers a higher payout with a 2.3% dividend yield versus 2.1% for its peer.

Performance & risk comparison

What's inside

The State Street SPDR MSCI ACWI Climate Paris Aligned ETF focuses on climate-resilient companies, with 34% of the portfolio in technology and 14% in financial services. Its largest positions include Nvidia at 5.64%, Apple at 5.01%, and Microsoft at 3.07%. The fund holds 630 securities and carries an ESG screen to align with net-zero strategies. It was launched in 2014. The State Street SPDR MSCI ACWI Climate Paris Aligned ETF has paid $0.94 per share over the trailing 12 months, which on its recent ~$45.64 share price works out to a 2.1% yield.

The Vanguard FTSE Emerging Markets ETF provides broad exposure to developing economies, tilting 32% toward technology and 17% toward financial services. Its top holdings include Taiwan Semiconductor Manufacturing Co. at 14.69%, Tencent Holdings at 2.75%, and Alibaba Group at 2.26%. It is a significantly larger fund by assets under management (AUM), containing 5,942 holdings, and was launched in 2005. The Vanguard FTSE Emerging Markets ETF has paid $1.38 per share over the trailing 12 months, which on its recent ~$59.17 share price works out to a 2.3% yield.

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What this means for investors

International ETFs are an efficient way to diversify a portfolio. In considering the State Street SPDR MSCI ACWI Climate Paris Aligned ETF (NZAC) and the Vanguard FTSE Emerging Markets ETF (VWO), deciding between the two comes down to which aligns better with your investment goals.

NZAC is for investors who see climate change as a risk, and want to invest in organizations that seek to address the situation by implementing net-zero emissions strategies and other actions in support of the 2015 Paris Agreement. Because of this ESG screen, NZAC holds far fewer equities than VWO, leading to lower diversification. However, it contains companies in both developed and emerging markets, with 65% of the fund weighted towards U.S. stocks. This reduces the volatility inherent in emerging economies.

VWO’s focus on emerging markets delivers exposure to high-growth economies, but the trade-off is greater volatility. Its top geographies are Taiwan at 33% and China at 27% of the fund. This concentration adds to the risk, especially given the geopolitical ups and downs between the U.S. and Chinese governments. VWO is an ideal ETF for investors who want to target emerging markets specifically, and are comfortable with the greater potential for wide swings in share price.

Robert Izquierdo has positions in Alibaba Group, Apple, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. 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.