Going Global: Vanguard Emerging Markets ETF vs. iShares World ETF Comparison

The choice between iShares MSCI World ETF (NYSEMKT:URTH) and Vanguard FTSE Emerging Markets ETF (NYSEMKT:VWO) hinges on the preference for developed-market stability versus lower-cost emerging-market potential.

These two funds offer global equity exposure but occupy different corners of the world map. While the iShares fund focuses on established economies, the Vanguard fund tracks developing markets. This comparison examines how their different geographic focuses impact performance, risk profiles, and costs for long-term investors.

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 the more affordable option with an expense ratio of 0.06%, which is lower than the 0.24% charged by the iShares fund. It also offers a higher payout for income-seeking investors.

Performance & risk comparison

What's inside

iShares MSCI World ETF provides exposure to 1,281 stocks in developed markets. Its sector allocation leads with technology at nearly 30%, financial services at 16.5%, and industrials at 11%. Its largest positions include Nvidia at 5.4%, Apple at 5%, and Microsoft at 3.9%. The fund was launched in 2012. iShares MSCI World ETF has paid $2.84 per share over the trailing 12 months, which on its recent ~$209.93 share price works out to a 1.4% yield.

Vanguard FTSE Emerging Markets ETF tracks more than 6,000 holdings across developing economies. Its portfolio is concentrated in technology at 29%, financial services at 18%, and consumer cyclical at 9%. Top holdings include Taiwan Semiconductor Manufacturing at 14.99%, Tencent Holdings at 3.19%, and Alibaba Group Holding at 2.33%. 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 ~$61.01 share price works out to a 2.3% yield.

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Which looks like the better buy

Choosing between URTH and VWO first comes down to which market segment you're looking to hold. VWO invests in companies headquartered in emerging markets, China, Brazil, Taiwan, and South Africa. This gives the fund high potential for growth, because the companies operating in these markets have the opportunity to capture a large share of a market that is less saturated and developed than that of the U.S., for example. But there's also heightened risk involved with investing in developing markets. Companies and their investors have to contend with geopolitical and economic uncertainty, foreign exchange fluctuations, and tariff threats, among other things. It has a lower expense ratio than URTH, and a higher dividend yield, which may be attractive to cost-conscious or income-focused investors.

URTH captures large- and mid-cap companies in developed markets only. It's less volatile than VWO, which can be seen both in its beta and its maximum drawdown over the last five years. It also outperforms VWO over a five-year period in terms of total return. But its expense ratio is higher, and it has underperformed the Vanguard S&P 500 ETF over the last five years, despite holding the same top stocks.

If you already hold a fund that tracks the S&P 500 index or hold Nvidia, Apple, and Microsoft somewhere else in your portfolio, and you're seeking some diversification with a little additional upside potential, it may make sense to add VWO. Just be sure to understand the additional risk that comes with investing in emerging markets, and size your allocation appropriately.

Sarah Sidlow has positions in Apple, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, Tencent, Vanguard FTSE Emerging Markets ETF, and Vanguard S&P 500 ETF. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.