Vanguard Total World Stock ETF vs iShares Emerging Markets ETF. Which Is the Better Fund to Cover the Globe in Your Portfolio?

The Vanguard Total World Stock ETF (NYSEMKT:VT) provides exposure to global equities including the United States, while the iShares Core MSCI Emerging Markets ETF (NYSEMKT:IEMG) targets exclusively developing economies.

Investors seeking a single-fund solution for global stock exposure often weigh these two instruments. While both cover international markets, the Vanguard fund includes a massive allocation to domestic U.S. giants. In contrast, IEMG specializes in the higher-growth, higher-volatility segment of emerging markets, providing a more targeted geographic bet for diversified portfolios that already have U.S. exposure.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The Vanguard fund is more affordable for long-term holders with its 0.06% expense ratio. While both ETFs generate income for investors, the iShares fund offers a higher payout, currently yielding 2.3% compared to the 1.6% distribution provided by the Vanguard fund.

Performance & risk comparison

What's inside

Vanguard Total World Stock ETF tracks thousands of companies across the globe, with its largest sector tilts toward technology at 31%, financial services at 16%, and industrials at 12%. Its largest positions include Nvidia Corp (NASDAQ:NVDA) at 4%, Apple Inc (NASDAQ:AAPL) at 3.6%, and Microsoft Corp (NASDAQ:MSFT) at 2.4%. It holds 10,048 securities in total and was launched in 2008. Vanguard Total World Stock ETF has paid $2.48 per share over the trailing 12 months, which on its recent ~$156.13 share price works out to a 1.6% yield.

iShares Core MSCI Emerging Markets ETF focuses on developing nations with heavy concentration in technology at 44%, financial services at 17%, and consumer cyclical at 8%. Its largest holdings include Taiwan Semiconductor Manufacturing at 13.2%, Samsung Electronics Ltd at 7.2%, and Sk Hynix Inc at 6.7%. It manages 2,659 holdings and was launched in 2012. iShares Core MSCI Emerging Markets ETF has paid $1.80 per share over the trailing 12 months, which on its recent ~$78.11 share price works out to a 2.3% yield.

Which fund is the better buy?

These are both sizable funds with relatively low expenses.

If you’re looking for a one-stop-shop ETF for your portfolio, then VT, the Vanguard Total World Stock ETF, is the choice. This fund covers the world, as it names suggets, including exposure to the U.S. stock markets. Given that the U.S. is the world’s largest equity market, VT allocates 62% of its portfolio to U.S. stocks. Japan, at 6%, and Taiwan, at about 3.5%, are the next largest countries. Nearly 32% of its portfolio is in developed-world markets outside the U.S., with the balance in emerging markets.

IEMG, the iShares Emerging Markets ETF, by comparison, is 51% developed markets outside the U.S., 1% in the U.S., and 49% in emerging markets. Taiwan is the largest country represented, at 28% of the portfolio, followed by South Korea at 19%, and China at just under 19%. IEMG is actually more heavily invested in large-cap stocks despite its greater weighting in emerging markets, at 82% large caps compared to 75% for VT. That implies IEMG owns the dominant businesses in the emerging markets.

Performance-wise, each fund can claim to be better than the other, depending on what time frame you look at. IEMG has been excelling recently, up 24.4% (to 12% for VT) year-to-date and 42.2% in the past 52 weeks, compared to 24.3% for VT. IEMG is three percentage points better than VT over the 3-year time frame, with 22.6% annualized returns, while VT is better over the 5-year and 10-year look-backs, with 10.9% and 12.8% returns, respectively, compared to IEMG’s respective 7.5% and 10.1% gains.

That makes choosing between IEMG and VT a difficult one. Odds are a U.S. investor already has lots of exposure to domestic equities elsewhere in their portfolio, which means VT would be overweighting American stocks more than one may intend. Go with IEMG to get the rest of the world well represented in your portfolio.

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, and Nvidia. The Motley Fool has a disclosure policy.