The iShares MSCI EAFE ETF (EFA) and the iShares U.S. Treasury Bond ETF (GOVT) are both among the Top 100 ETFs. EFA is a iShares Foreign Large Blend fund and GOVT is a iShares Intermediate Government fund. So, what’s the difference between EFA and GOVT? And which fund is better?
The expense ratio of EFA is 0.27 percentage points higher than GOVT’s (0.32% vs. 0.05%). EFA also has a high exposure to the financial services sector while GOVT is mostly comprised of AAA bonds. Overall, EFA has provided higher returns than GOVT over the past ten years.
In this article, we’ll compare EFA vs. GOVT. We’ll look at annual returns and fund composition, as well as at their performance and industry exposure. Moreover, I’ll also discuss EFA’s and GOVT’s portfolio growth, holdings, and risk metrics and examine how these affect their overall returns.
|Name||iShares MSCI EAFE ETF||iShares U.S. Treasury Bond ETF|
|Category||Foreign Large Blend||Intermediate Government|
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 U.S. Treasury Bond ETF (GOVT) is a Intermediate Government fund that is issued by iShares. It currently has 17.07B total assets under management and has yielded an average annual return of 2.67% over the past 10 years. The fund has a dividend yield of 1.0% with an expense ratio of 0.05%.
EFA’s dividend yield is 1.28% higher than that of GOVT (2.28% vs. 1.0%). Also, EFA yielded on average 3.80% more per year over the past decade (6.47% vs. 2.67%). The expense ratio of EFA is 0.27 percentage points higher than GOVT’s (0.32% vs. 0.05%).
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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%.
|GOVT Bond Sectors||Weight|
GOVT’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.
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The iShares MSCI EAFE ETF (EFA) has a Treynor Ratio of 5.33 with a Alpha of 0.47 and a R-squared of 96.78. Its Sharpe Ratio is 0.41 while EFA’s Beta is 0.98. Furthermore, the fund has a Mean Return of 0.57 and a Standard Deviation of 15.01.
The iShares U.S. Treasury Bond ETF (GOVT) has a Beta of 0 with a Sharpe Ratio of 0 and a Alpha of 0. Its Standard Deviation is 0 while GOVT’s R-squared is 0. Furthermore, the fund has a Treynor Ratio of 0 and a Mean Return of 0.
EFA’s Mean Return is 0.57 points higher than that of GOVT and its R-squared is 96.78 points higher. With a Standard Deviation of 15.01, EFA is slightly more volatile than GOVT. The Alpha and Beta of EFA are 0.47 points higher and 0.98 points higher than GOVT’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 2020 was the strongest year for GOVT, returning 7.92% on an annual basis. The poorest year for GOVT in the last ten years was 2013, with a yield of -2.84%. Most years the iShares U.S. Treasury Bond ETF has given investors modest returns, such as in 2018, 2015, and 2016, when gains were 0.74%, 0.76%, and 0.92% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in EFA would have resulted in a final balance of $16,505. This is a profit of $6,505 over 8 years and amounts to a compound annual growth rate (CAGR) of 6.47%.
With a $10,000 investment in GOVT, the end total would have been $12,297. This equates to a $2,297 profit over 8 years and a compound annual growth rate (CAGR) of 2.67%.
EFA’s CAGR is 3.80 percentage points higher than that of GOVT and as a result, would have yielded $4,208 more on a $10,000 investment. Thus, EFA outperformed GOVT by 3.80% annually.
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