Both the iShares Core MSCI Emerging Markets ETF (IEMG -2.24%) and the Schwab Emerging Markets Equity ETF (SCHE -1.08%)serve as core building blocks for international diversification, targeting stocks across developing nations.
While they share similar goals, differences in their underlying indexes lead to varying sector exposures, which can impact long-term risk and return profiles.
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.
SCHE offers both a lower fee and a higher dividend yield, which could appeal to fee-conscious and income-focused investors. Investors can expect to pay $6 per year for every $10,000 invested in SCHE compared to $9 for every $10,000 in IEMG, which could add up significantly for long-term investors with large account balances.
IEMG aims to closely mirror an index of large-, mid-, and small-cap companies across developing global economies. Its diversified portfolio currently holds nearly 2,900 stocks, with a significant tilt toward technology at 40% of assets, followed by financial services at 18% and consumer cyclical at 8%. Its largest positions include Taiwan Semiconductor Manufacturing, Samsung Electronics, and SK Hynix. This fund was launched in 2012 and has paid $1.80 per share in dividends over the trailing 12 months.
SCHE focuses on mirroring the FTSE Emerging Index. It maintains a portfolio of 2,221 holdings, with sector concentrations in technology at 31% of assets, financial services at 21%, and consumer cyclical 10%. Its top three holdings include Taiwan Semiconductor Manufacturing, Tencent, and Alibaba Group. This fund was launched in 2010 and has paid $0.95 per share in dividends over the trailing 12 months.
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While these two ETFs share many similarities, their differences in risk and reward could be a deciding factor for some investors.
IEMG carries a higher beta and slightly deeper max drawdown than SCHE, indicating greater price volatility over the last five years. However, it has substantially outperformed SCHE over the last 12 months and slightly outpaced it in five-year growth, too.
The difference in sector concentrations could be a factor behind the risk and performance gap. IEMG devotes 40% of its portfolio to tech stocks, compared to 31% for SCHE. Tech companies tend to be more volatile than stocks in more established industries, and this is especially true in emerging markets.
When the tech industry is thriving, IEMG could be the more lucrative investment. But if this sector falters, SCHE will likely be the safer bet. The ideal option for you will depend on your risk tolerance and the gaps you're looking to fill within your portfolio.
Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing and Tencent. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
