Which Is the Better International ETF, Vanguard's VEA Targeting Developed Markets or Schwab's Emerging Market-Focused SCHE?

The primary difference between the Vanguard FTSE Developed Markets ETF (NYSEMKT:VEA) and Schwab Emerging Markets Equity ETF (NYSEMKT:SCHE) lies in their geographic focus, separating established global economies from rapid-growth emerging markets.

Investors often use these two funds to build the international portion of a balanced portfolio. While both offer broad exposure outside the United States, they target different economic tiers. The Vanguard fund tracks developed markets, whereas the Schwab fund targets nations still in various stages of industrialization.

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-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The Vanguard fund is more affordable with an expense ratio of 0.03%, while the Schwab fund charges 0.06%. Both ETFs provide competitive income, with the Schwab fund offering a slightly higher trailing-12-month payout.

Performance & risk comparison

What's inside

The Vanguard FTSE Developed Markets ETF holds 3,873 stocks across financial services, technology, and industrials. Its largest positions include Samsung Electronics at 3.14%, SK Hynix at 2.99%, and ASML at 2.34%. It was launched in 2007. The Vanguard fund has paid $1.81 per share over the trailing 12 months, which on its recent ~$73.54 share price works out to a 2.5% yield.

The Schwab Emerging Markets Equity ETF focuses on technology, financial services, and consumer cyclicals, holding 2,223 stocks. Its largest positions include Taiwan Semiconductor Manufacturing at 16.95%, Tencent at 3.23%, and Alibaba Group at 2.62%. It was launched in 2010. The Schwab fund has paid $0.95 per share over the trailing 12 months, which on its recent ~$36.86 share price works out to a 2.6% yield.

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Which looks like the better buy

Investing in international stocks helps round out a U.S.-centric portfolio, and an efficient way to do so is choosing an exchange-traded fund. The Vanguard FTSE Developed Markets ETF (VEA) and the Schwab Emerging Markets Equity ETF (SCHE) offer two different approaches to international investing. Which fund is better depends on the factors that matter most to your investment goals.

SCHE provides exposure to the high-growth economies of emerging markets. Its more than 2,000 holdings give it good diversification. That said, about 34% of the ETF comprises companies in the technology sector, which can boost returns given the artificial intelligence boom, but adds to volatility. In addition, nearly 34% of SCHE targets businesses in Taiwan, and another 26% is in China. That's a majority of the fund focused on these two countries. Given the ups and downs of U.S. relations with China, this composition heightens investor risk. Consequently, SCHE is for investors who specifically seek emerging markets exposure and are comfortable with the increased volatility.

VEA offers greater diversification than SCHE with nearly 4,000 holdings. About 50% of the fund is in European companies and 38% in the Asia-Pacific region, with Japan being the largest country comprising 21% of the ETF. The focus on developed markets means VEA offers more stability than SCHE. Its low expense ratio makes it a solid fund to buy and hold for the long term.

Robert Izquierdo has positions in ASML, Alibaba Group, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends ASML, Taiwan Semiconductor Manufacturing, Tencent, and Vanguard FTSE Developed Markets ETF. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.