The iShares MSCI EAFE ETF (EFA) and the iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) are both among the Top 100 ETFs. EFA is a iShares Foreign Large Blend fund and EMB is a iShares Emerging Markets Bond fund. So, what’s the difference between EFA and EMB? And which fund is better?
The expense ratio of EFA is 0.07 percentage points lower than EMB’s (0.32% vs. 0.39%). EFA also has a high exposure to the financial services sector while EMB is mostly comprised of BBB bonds. Overall, EFA has provided higher returns than EMB over the past ten years.
In this article, we’ll compare EFA vs. EMB. We’ll look at annual returns and industry exposure, as well as at their portfolio growth and risk metrics. Moreover, I’ll also discuss EFA’s and EMB’s fund composition, performance, and holdings and examine how these affect their overall returns.
|Name||iShares MSCI EAFE ETF||iShares J.P. Morgan USD Emerging Markets Bond ETF|
|Category||Foreign Large Blend||Emerging Markets Bond|
The iShares MSCI EAFE ETF (EFA) is a Foreign Large Blend fund that is issued by iShares. It currently has 56.77B total assets under management and has yielded an average annual return of 6.47% over the past 10 years. The fund has a dividend yield of 2.28% with an expense ratio of 0.32%.
The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) is a Emerging Markets Bond fund that is issued by iShares. It currently has 19.76B total assets under management and has yielded an average annual return of 6.43% over the past 10 years. The fund has a dividend yield of 3.85% with an expense ratio of 0.39%.
EFA’s dividend yield is 1.57% lower than that of EMB (2.28% vs. 3.85%). Also, EFA yielded on average 0.04% more per year over the past decade (6.47% vs. 6.43%). The expense ratio of EFA is 0.07 percentage points lower than EMB’s (0.32% vs. 0.39%).
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|ASML Holding NV||1.69%|
|Roche Holding AG||1.55%|
|LVMH Moet Hennessy Louis Vuitton SE||1.28%|
|Toyota Motor Corp||1.09%|
|AIA Group Ltd||0.88%|
EFA’s Top Holdings are Nestle SA, ASML Holding NV, Roche Holding AG, LVMH Moet Hennessy Louis Vuitton SE, and Novartis AG at 2.11%, 1.69%, 1.55%, 1.28%, and 1.19%.
Toyota Motor Corp (1.09%), AstraZeneca PLC (0.92%), and Unilever PLC (0.9%) have a slightly smaller but still significant weight. AIA Group Ltd and SAP SE are also represented in the EFA’s holdings at 0.88% and 0.86%.
|EMB Bond Sectors||Weight|
EMB’s Top Bond Sectors are ratings of BBB, B, BB, A, and AA at 33.79%, 21.97%, 16.92%, 13.67%, and 7.97%. The fund is less weighted towards Below B (4.49%), Others (1.11%), and AAA (0.09%) rated bonds.
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The iShares MSCI EAFE ETF (EFA) has a Mean Return of 0.57 with a R-squared of 96.78 and a Alpha of 0.47. Its Treynor Ratio is 5.33 while EFA’s Sharpe Ratio is 0.41. Furthermore, the fund has a Beta of 0.98 and a Standard Deviation of 15.01.
The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) has a Sharpe Ratio of 0.55 with a Standard Deviation of 8.44 and a Beta of 1.36. Its Alpha is 0.89 while EMB’s R-squared is 23.34. Furthermore, the fund has a Mean Return of 0.44 and a Treynor Ratio of 3.24.
EFA’s Mean Return is 0.13 points higher than that of EMB and its R-squared is 73.44 points higher. With a Standard Deviation of 15.01, EFA is slightly more volatile than EMB. The Alpha and Beta of EFA are 0.42 points lower and 0.38 points lower than EMB’s Alpha and Beta.
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EFA had its best year in 2017 with an annual return of 24.94%. EFA’s worst year over the past decade yielded -13.83% and occurred in 2018. In most years the iShares MSCI EAFE ETF provided moderate returns such as in 2016, 2010, and 2020 where annual returns amounted to 0.96%, 7.52%, and 7.92% respectively.
The year 2012 was the strongest year for EMB, returning 17.64% on an annual basis. The poorest year for EMB in the last ten years was 2013, with a yield of -7.42%. Most years the iShares J.P. Morgan USD Emerging Markets Bond ETF has given investors modest returns, such as in 2014, 2011, and 2016, when gains were 6.69%, 7.2%, and 9.41% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in EFA would have resulted in a final balance of $18,269. This is a profit of $8,269 over 11 years and amounts to a compound annual growth rate (CAGR) of 6.47%.
With a $10,000 investment in EMB, the end total would have been $19,295. This equates to a $9,295 profit over 11 years and a compound annual growth rate (CAGR) of 6.43%.
EFA’s CAGR is 0.04 percentage points higher than that of EMB and as a result, would have yielded $1,026 less on a $10,000 investment. Thus, EFA outperformed EMB by 0.04% annually.
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