Which Emerging Markets ETF Deserves Your Portfolio? VWO and EEM Face Off

The Core Differences That Matter

When choosing between iShares MSCI Emerging Markets ETF (NYSEMKT:EEM) and Vanguard FTSE Emerging Markets ETF (NYSEMKT:VWO), investors encounter a classic tradeoff between cost efficiency and recent performance. Both funds provide access to the same broad asset class—large and mid-cap equities from developing economies—yet their fee structures, liquidity, and track records tell strikingly different stories.

The most glaring distinction lies in expense ratios. VWO charges just 0.07% annually, while EEM commands 0.72%—a gap of 65 basis points that compounds significantly over decades. Yet this cost advantage hasn’t necessarily translated into better returns; EEM delivered 26.8% over the trailing 12 months compared to VWO’s 19.0% as of mid-December 2025.

Looking Under the Hood: Holdings and Sectors

Both funds maintain surprisingly similar portfolio compositions, with technology, financial services, and consumer sectors forming the backbone of each. VWO casts a wider net with 2,000+ stocks versus EEM’s 1,215 holdings, despite holding only $141.2 billion in assets under management compared to EEM’s $20.5 billion.

The shared DNA shows in their top holdings. Taiwan Semiconductor Manufacturing (NYSE:TSM) and Tencent Holdings (OTC:TCEHY) anchor both portfolios. Beyond that, the strategies diverge: VWO rounds out its top three with Alibaba Group Holding (NYSE:BABA), while EEM includes Samsung Electronics (OTC:SSNL.F). This difference stems from a fundamental classification choice—EEM treats South Korea as an emerging market, VWO does not.

Sector allocation reflects this nuance:

• VWO: Technology (23%), financial services (21%), consumer cyclical (13%)
• EEM: Technology (27%), financial services (22%), consumer cyclical (12%)

Neither employs leverage, currency hedging, or ESG-specific overlays, keeping both funds relatively straightforward.

The Risk and Reward Scorecard

Performance resilience tells a longer-term story. Over five years, a hypothetical $1,000 investment in VWO would have grown to $1,071, outpacing EEM’s $1,043. This becomes particularly important when examining downside protection: EEM experienced a steeper maximum drawdown of 39.82% versus VWO’s 34.33% over the same period.

Where EEM gains ground is volatility. With a beta of 0.99, it moves nearly in line with the S&P 500, while VWO’s 0.88 beta suggests dampened price swings. Income generation also favors VWO slightly, offering a 2.8% dividend yield against EEM’s 2.2%.

Making the Right Choice

For investors prioritizing cost efficiency, transparency, and liquidity, VWO presents a compelling case. Its substantially lower fee structure means less drag on returns, its larger asset base ensures tighter bid-ask spreads, and its superior dividend yield provides consistent income. The fund’s 20.8-year track record adds credibility.

Conversely, EEM’s recent outperformance stems largely from South Korean exposure through Samsung and other companies in that market. If geographic diversification into developed Asian economies matters to your strategy, EEM’s inclusion of this market justifies the premium fee.

The decision ultimately hinges on a single question: Is the potential added exposure to South Korea worth the higher ongoing costs? For most long-term investors seeking efficient emerging markets exposure, VWO’s structural advantages—lower fees, broader diversification, stronger liquidity—likely answer that question in the negative.

Understanding the Terminology

Expense ratio: Annual operational cost charged by a fund as a percentage of assets.

Dividend yield: Annual distributions expressed as a percentage of current fund price.

Beta: Measure of price volatility relative to the S&P 500 benchmark.

AUM: Total market value of all holdings within a fund.

Max drawdown: Largest peak-to-trough percentage decline during a specific timeframe.

Total return: Combined effect of price appreciation plus reinvested dividends.

Emerging markets: Nations with developing but expanding financial systems and economies.

Sector tilt: Above-average allocation to particular industry segments relative to benchmarks.

Concentration: Degree to which assets cluster in a limited number of holdings or sectors.

Leverage: Use of borrowed capital to amplify investment exposure and potential returns.

Currency hedge: Risk-reduction strategy offsetting foreign exchange fluctuations.

ESG overlays: Investment screens incorporating environmental, social, and governance criteria.