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Vanguard Emerging Markets Stock Index Fund

VWO:NYSE

equity ETF | passive | Vanguard | Tracks FTSE Emerging Markets All Cap China A Inclusion Index

Market Price

US$56.93 (26 Jan 2026)

+29.26% (YoY)

NAV

US$56.44

+0.87% Premium

Yield

2.79%

-12.81% (YoY)

Expense Ratio

7.00%

0% vs Avg: 7.00%

Box Set (ETF)

⚡ Executive Summary

📊 The Bottom Line

This ETF offers broad, diversified exposure to stocks issued by companies located in emerging market countries. With a highly competitive expense ratio of 0.07% and tight tracking, VWO stands out as a cost-effective vehicle for accessing emerging market equities. The bull case projects NAV reaching US$67.73 (+20%) while the bear case suggests US$45.15 (-20%) over the next 12-18 months, reflecting the inherent volatility.

⚖️ Risk vs Reward

Emerging markets equities currently trade at an attractive aggregate P/E of 16.2x, presenting a compelling valuation compared to more expensive developed markets. The sector has strong secular growth drivers but remains vulnerable to global economic slowdowns and geopolitical tensions. While VWO's diversified portfolio helps mitigate single-country risk, its underlying holdings are sensitive to fluctuations in the US dollar and commodity prices. The risk-reward profile is balanced, favoring long-term investors comfortable with higher volatility for potentially superior growth, especially given the current valuation discount relative to historical trends and developed market peers.

🚀 Why VWO Could Soar

• Emerging markets economies are projected to see higher GDP growth rates than developed nations, driving corporate earnings expansion.
• A sustained weakening of the US dollar would typically boost performance of emerging market assets, making their exports more competitive and debt burdens lighter.
• Attractive valuations (P/E of 16.2x) compared to historical averages and developed markets could lead to multiple expansion as investor sentiment improves.

⚠️ What Could Go Wrong

• Geopolitical instability, trade tensions, or unexpected policy shifts in major emerging economies (e.g., China, India) could negatively impact investor confidence and capital flows.
• A significant global economic slowdown or recession would likely reduce demand for goods and services from emerging market companies, pressuring earnings.
• Strengthening US dollar or rising interest rates could lead to capital outflows from emerging markets, dampening equity performance.

🏢 Fund Overview

What Are You Actually Buying

The emerging markets equity sector comprises publicly traded companies in developing economies experiencing rapid industrialization and economic growth, such as China, Taiwan, India, Brazil, and South Africa.
These markets offer higher growth potential driven by expanding middle classes, urbanization, and technological adoption, but also come with elevated risks, including political instability, currency fluctuations, and less mature regulatory environments.
VWO primarily targets large-, mid-, and small-cap stocks within these countries, offering a broad and diversified exposure to the overall economic development of the emerging world.

Market Dynamics & Outlook

Emerging markets equities currently offer attractive valuations relative to developed markets, with a P/E ratio of 16.2x compared to higher multiples in the S&P 500.
Economic growth differentials are expected to favor emerging markets in 2026, supported by recovering global trade and commodity prices.
Geopolitical risks, particularly concerning China-US relations and regional conflicts, remain a key headwind, introducing potential volatility.

🎯 Why This Matters

Understanding the emerging markets sector's dynamics is crucial for investors seeking higher growth potential, albeit with increased volatility. VWO provides a simple and diversified way to access these markets, allowing investors to participate in the long-term structural growth stories while managing the inherent risks through its broad portfolio.

📈 Valuation & Analysis

Historical Performance

YTD

+3.31%

+29.26%

Yearly Growth (3Y)

+14.83%

Yearly Growth (5Y)

+4.69%

Yearly Growth (10Y)

+8.16%

Yearly Growth (Since Inception)

+6.51%

Current Valuation

The Vanguard FTSE Emerging Markets Stock Index Fund ETF's underlying holdings trade at an aggregate price-to-earnings (P/E) ratio of 16.2x as of December 31, 2025. The price-to-book (P/B) ratio stands at 2.4x. These valuations suggest that emerging market equities are relatively attractive when compared to developed market counterparts, which often trade at higher multiples. Historically, emerging markets have frequently offered a valuation discount, and the current levels reinforce this trend, indicating potential for capital appreciation if market sentiment shifts or earnings growth accelerates. The current dividend yield of 2.79% provides an income component alongside growth prospects.

The Bull Case - Upside to

Robust Emerging Market GDP Growth

Medium Probability

If emerging market GDP growth surpasses expectations by 1-2 percentage points, driven by domestic consumption and export recovery, this could translate to an additional 10-15% earnings growth for VWO's holdings, leading to a 15% upside to NAV.

Favorable Commodity Price Environment

Medium Probability

Sustained high commodity prices (e.g., oil, industrial metals) would significantly benefit commodity-exporting emerging economies and companies, potentially adding 5-8% to VWO's overall returns.

Positive Re-rating from Valuation Discount

High Probability

If the current valuation gap between emerging and developed markets narrows, with VWO's P/E expanding from 16.2x to 18-19x, this could drive a 10-12% increase in NAV, as investors seek undervalued growth opportunities.

The Bear Case - Downside to

Escalation of Geopolitical Tensions

Medium Probability

Increased trade protectionism or military conflicts could disrupt global supply chains and economic stability in key emerging markets, potentially leading to a 15-20% decline in VWO's NAV due to reduced investor confidence and capital flight.

Significant Global Economic Slowdown

Medium Probability

A deeper-than-expected global recession would severely curtail demand for emerging market exports and depress corporate earnings, potentially causing a 20-25% drop in VWO's value.

Sustained US Dollar Strength and Higher Rates

High Probability

Continued appreciation of the US dollar and persistent high US interest rates could lead to capital outflows from emerging markets, increasing debt service costs for many companies and governments, resulting in a 10-15% downside to NAV.

Risk/Reward Assessment

The risk-reward profile for VWO is characterized by significant growth potential balanced against inherent emerging market volatility. The bull case hinges on robust economic expansion in key developing nations and a re-evaluation of current, attractive valuations relative to developed markets. Should these catalysts materialize, the diversified nature of VWO's holdings could capture substantial upside. Conversely, the bear case highlights sensitivities to global economic shocks and geopolitical tensions, which have historically impacted emerging markets disproportionately. While VWO's low expense ratio and broad diversification offer structural advantages, investors must weigh the potential for higher returns against the heightened risk of drawdowns from external macroeconomic and political factors. The current neutral to bullish analyst sentiment on underlying holdings provides some reassurance, but careful monitoring of global economic indicators remains essential.

Peer Comparison

• VWO offers a highly competitive expense ratio of 0.07%, matching the lowest among its peers and providing a significant cost advantage over higher-fee alternatives like EEM. • With US$142.58 billion in AUM, VWO is one of the largest emerging markets ETFs, ensuring superior liquidity and minimal trading costs for investors. [cite: 1, Yahoo Raw] • VWO provides comprehensive exposure to a wide array of emerging market equities, including small-cap stocks, through its FTSE index methodology, potentially offering broader diversification than some peers that focus solely on large- and mid-caps. • While its 1-year performance may sometimes lag slightly behind certain peers with different index constructions, its long-term track record and low costs generally contribute to strong risk-adjusted returns.

Fund	Expense Ratio	AUM (B)	1Y Return	3Y Return	5Y Return	Yield
Vanguard Emerging Markets Stock Index Fund (VWO) ⭐	7.00%	US$142.6B	29.26%	14.83%	4.69%	2.79%
iShares Core MSCI Emerging Markets ETF (IEMG)	9.00%	US$120.1B	32.12%	16.28%	4.60%	1.93%
iShares MSCI Emerging Markets ETF (EEM)	72.00%	US$20.2B	33.34%	15.80%	3.50%	1.41%
SPDR Portfolio Emerging Markets ETF (SPEM)	7.00%	US$15.3B	24.80%	15.49%	5.13%	2.42%

🎯 Why This Matters

The detailed valuation and peer comparison reveal that VWO offers a highly competitive and diversified approach to emerging markets. Its low cost and broad exposure make it an attractive long-term holding, though investors must remain mindful of the inherent risks associated with this asset class, particularly against a backdrop of evolving global economic and geopolitical landscapes.

📊 Appendix

Top 10 Holdings (80+ of ETF Value)

#	Ticker	Logo	Name	Sector	Weight
1	2330	T	Taiwan Semiconductor Manufacturing Co., Ltd.	Technology	11.0%
2	0700	T	Tencent Holdings Ltd	Communication Services	4.4%
3	9988	A	Alibaba Group Holding Limited	Consumer Cyclical	3.0%
4	HDFCBANK	H	HDFC Bank Limited	Financials	1.1%
5	RELIANCE	R	Reliance Industries Limited	Energy	1.1%
6	2317	H	Hon Hai Precision Industry Co., Ltd.	Technology	0.8%
7	1810	X	Xiaomi Corporation	Technology	0.8%
8	0939	C	China Construction Bank Corporation	Financials	0.8%
9	PDD	P	PDD Holdings Inc.	Consumer Cyclical	0.8%
10	ICICIBANK	I	ICICI Bank Limited	Financials	0.7%

Fund Mechanics

How It Works

The Vanguard FTSE Emerging Markets Stock Index Fund employs an indexing investment approach, meticulously designed to track the performance of the FTSE Emerging Markets All Cap China A Inclusion Index. This index is broadly diversified, comprising stocks issued by companies situated in emerging market countries globally. The fund utilizes a 'sampling' strategy, which means it doesn't necessarily hold every single security in the index. Instead, it maintains a representative collection of securities that collectively mirror the index's key characteristics, risk profile, and overall return. This passive management style aims to minimize tracking error and reduce operational costs. The index itself encompasses a wide spectrum of market capitalizations, from large-cap giants to mid- and small-cap companies. It specifically includes China A-shares, offering broader exposure to the Chinese equity market than some older emerging market indices. The index constituents are regularly reviewed and rebalanced to ensure they accurately reflect the investable universe of emerging market equities, providing investors with a dynamic and comprehensive representation of this growth-oriented asset class.

Holdings Breakdown

Number of Holdings

6252

Top 10 Concentration

2758.0%

Top 20 Concentration

3500.0%

Turnover Rate

590%

Category	Weight	Description
Technology	23.5%
Financials	21.3%
Consumer Cyclical	12.7%
Communication Services	8.9%
Basic Materials	8.1%
Industrials	7.8%
Energy	4.3%
Healthcare	4.1%
Consumer Defensive	4.0%
Utilities	2.8%
Real Estate	2.4%
Emerging Markets (Overall)	99.3%	Geographical allocation to emerging markets

Cost Efficiency

Expense Ratio

7.00%

Median Bid-Ask Spread

2.000%

Metric	1 Year	3 Year	5 Year
Tracking Error	N/A	N/A	N/A
Tracking Difference	33.00%	6.00%	-1.00%

Performance History

Year	ETF Return	Benchmark Return	Tracking Diff	Volatility	Max Drawdown	Sharpe Ratio
2025	24.83%	24.50%	0.33%	N/A	N/A	N/A
2024	11.01%	11.63%	-0.62%	N/A	N/A	N/A
2023	9.27%	9.55%	-0.28%	N/A	N/A	N/A
2022	-17.72%	-17.58%	-0.14%	N/A	N/A	N/A
2021	0.96%	1.48%	-0.52%	N/A	N/A	N/A
2020	15.32%	15.51%	-0.19%	N/A	N/A	N/A
2019	20.40%	20.41%	-0.01%	N/A	N/A	N/A
2018	-14.57%	-14.77%	0.20%	N/A	N/A	N/A
2017	31.38%	31.06%	0.32%	N/A	N/A	N/A
2016	11.75%	11.77%	-0.02%	N/A	N/A	N/A
2015	-15.35%	-15.40%	0.05%	N/A	N/A	N/A

Annualized Return Since Inception

6.51%

Detailed Peer Comparison

Ticker	Name	Issuer	Exp Ratio	AUM (B)	1Y	3Y	5Y	Yield	StdDev 3Y	Sharpe 3Y	Spread
VWO ⭐	Vanguard Emerging Markets Stock Index Fund	Vanguard	7.00%	US$142.6B	29.3%	14.8%	4.7%	2.79%	12.24%	0.83	2.000%
IEMG	iShares Core MSCI Emerging Markets ETF	BlackRock	9.00%	US$120.1B	32.1%	16.3%	4.6%	1.93%	12.94%	0.21	1.000%
EEM	iShares MSCI Emerging Markets ETF	BlackRock	72.00%	US$20.2B	33.3%	15.8%	3.5%	1.41%	16.09%	N/A	N/A
SPEM	SPDR Portfolio Emerging Markets ETF	State Street Global Advisors	7.00%	US$15.3B	24.8%	15.5%	5.1%	2.42%	11.97%	0.91	N/A
Category Average			24.00%	—	29.9%	15.6%	4.5%	2.14%	—	0.65	—

Risk Metrics

Beta

0.55

Alpha

0.03

R-Squared

55.00

Standard Deviation

1 Year	3 Years	5 Years	10 Years
7.27%	12.24%	13.92%	15.68%

Sharpe Ratio

1Y	3Y	5Y	10Y
2.95	0.83	0.12	0.39

Sortino Ratio

3 Years	5 Years
1.16	0.17

Maximum Drawdown

1 Year	3 Years	5 Years	Since Inception
-1.22%	-11.19%	-31.86%	-61.73%

Upside Capture

8100.0%

Downside Capture

8300.0%

Correlations

S&P 500

0.63

Liquidity & Trading

Volume

Avg Daily Shares

10,363,262

Avg Daily Dollar Volume

US$590.1M

Trend

increasing

Bid-Ask Spread

Metric	Value
Median (Percent)	2.000%
Median (Dollar)	US$0.01
During Hours	N/A
At Close	N/A
Volatility	low

Premium/Discount to NAV

Metric	Value
Current	49.00%
30-Day Average	45.00%
1-Year Average	58.00%
Standard Deviation	N/A
Max Premium (1Y)	59.00%
Max Discount (1Y)	N/A

Creation/Redemption Activity

Trend

string

Net Flows

Period	Net Flow
1 Month	US$0.0M
1 Quarter	US$0.0M
1 Year	US$0.0M

⚠️ Disclaimer: This ETF research report is for informational and educational purposes only. It does not constitute investment advice, a recommendation, or an offer to buy or sell securities. EC² Invest is not a registered investment advisor. All data is sourced from public sources and may contain errors. Past performance does not guarantee future results. ETF investing involves risk, including possible loss of principal. Always conduct your own research and consult with a qualified financial professional before making investment decisions.