Morningstar - Summer 2019 - 76

Strategies

Broad Portfolio, Rock-Bottom Expenses
This ETF should have a long-term, durable edge
over competitors.
BEST IDEAS: PASSIVE

Daniel Sotiroff

Vanguard FTSE Emerging Markets ETF VWO

This article is adapted from the ETF's Morningstar Global Fund Report dated
April 3, 2019.

Stats 03/31/2019

Vanguard FTSE Emerging Markets ETF VWO has a broad portfolio and
rock-bottom expense ratio that should help it perform well over the long haul.
It earns a Morningstar Analyst Rating of Bronze.

Morningstar Analyst Rating
´

Morningstar Category
Diversified Emerg Mrkets

Expense Ratio
0.12%

Category Average Expense
1.36%

5-Yr Annlzd Return
3.50%

5-Yr % Rank in Cat
32

Morningstar Pillars 03/31/2019

The fund tracks the FTSE Emerging Markets All Cap China A Inclusion Index,
which includes large-, mid-, and small-cap stocks from 23 developing
nations. Its market-cap-weighted approach benefits investors by capturing
the market's collective opinion of each stock's value while mitigating turnover
and trading costs. Markets usually get long-term prices correct, though
they do occasionally make mistakes, and market-cap-weighting will increase
the fund's exposure at such times.

Differences in country composition can cause the fund's performance to
deviate from its peers. Stocks listed in China make up more than one
third of the portfolio, compared with 26% for the category average. The fund
excludes Korean stocks because FTSE classifies Korea as a developed
market, while a typical competitor has a 12% stake.

Performance
¶ Neutral

People
∞ Positive

Parent
∞ Positive

Price
∞ Positive

Growth of 10K 03/31/2019

$16K

Morningstar Emerging Markets Index

13.53
13.26

14
12

Vanguard FTSE Emerging Markets ETF
10
8
04/2016

04/2017

04/2018
Morningstar Ratings 03/31/2019

Morningstar Style Box 02/28/2019

Data surveyed
from the
fund company.

Micro Small Mid Large Giant

The portfolio's broad reach helps mitigate the impact of the worst performing
stocks. It holds more than 4,000 names, while its 10 largest positions
account for only 19% of its assets. It also provides greater exposure to a narrow
segment of the emerging-markets universe. Up until several years ago,
locally traded Chinese stocks, or A-shares, were difficult for retail investors
to hold due to restrictions imposed by the Chinese government. But
these restrictions have loosened, and the fund had 4% of its assets parked
in A-shares as of February. This is about 3% more than many of its indextracking peers.

Process
¶ Neutral

Mstar
Period Return

Mstar
Risk

Mstar
Rating

3-Yr

Average

Average

QQQ

5-Yr

Above Avg Average

QQQ

10-Yr

Average

QQQ

Average

QQQ

Overall Rating

Deep Core Core Core High
Value Value
Grwth Grwth

Top 5 Regions 02/28/2019

Omitting Korean stocks has hurt the fund's category relative performance as
Korean stocks have been one of the better performing markets among
emerging economies over the past several years. Consequently, the fund's total
and risk-adjusted returns landed near the category midpoint from its
launch in June 2006 through February. Its ultralow 0.12% expense ratio should
provide a long-term durable edge over its more expensive competitors. K
Daniel Sotiroff is a passive strategies analyst with Morningstar Research Services.

Region

■ Fund

Asia Developed

14.44
13.63

Latin America
Africa/Middle East
Europe Emerging

Morningstar Summer 2019

56.74

45.01

6.63
5.20

0%
76

❙ Category Average

Asia Emerging
23.66
14.61

9.12

6.80
10

20

30

40

50

60
Morningstar - Summer 2019

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