The iShares MSCI EAFE ETF (EFA) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) are both among the Top 100 ETFs. EFA is a iShares Foreign Large Blend fund and LQD is a iShares Corporate Bond fund. So, what’s the difference between EFA and LQD? And which fund is better?
The expense ratio of EFA is 0.18 percentage points higher than LQD’s (0.32% vs. 0.14%). EFA also has a high exposure to the financial services sector while LQD is mostly comprised of BBB bonds. Overall, EFA has provided lower returns than LQD over the past ten years.
In this article, we’ll compare EFA vs. LQD. We’ll look at holdings and fund composition, as well as at their portfolio growth and industry exposure. Moreover, I’ll also discuss EFA’s and LQD’s performance, annual returns, and risk metrics and examine how these affect their overall returns.
|Name||iShares MSCI EAFE ETF||iShares iBoxx $ Investment Grade Corporate Bond ETF|
|Category||Foreign Large Blend||Corporate 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 iBoxx $ Investment Grade Corporate Bond ETF (LQD) is a Corporate Bond fund that is issued by iShares. It currently has 40.23B total assets under management and has yielded an average annual return of 6.58% over the past 10 years. The fund has a dividend yield of 2.48% with an expense ratio of 0.14%.
EFA’s dividend yield is 0.20% lower than that of LQD (2.28% vs. 2.48%). Also, EFA yielded on average 0.11% less per year over the past decade (6.47% vs. 6.58%). The expense ratio of EFA is 0.18 percentage points higher than LQD’s (0.32% vs. 0.14%).
|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%.
|LQD Bond Sectors||Weight|
LQD’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and BB at 50.92%, 37.97%, 8.49%, 2.7%, and 0.05%. The fund is less weighted towards Below B (0.0%), B (0.0%), and US Government (0.0%) rated bonds.
The iShares MSCI EAFE ETF (EFA) has a Mean Return of 0.57 with a Beta of 0.98 and a Sharpe Ratio of 0.41. Its Alpha is 0.47 while EFA’s R-squared is 96.78. Furthermore, the fund has a Treynor Ratio of 5.33 and a Standard Deviation of 15.01.
The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has a Treynor Ratio of 3.08 with a Standard Deviation of 5.94 and a Mean Return of 0.47. Its Sharpe Ratio is 0.85 while LQD’s R-squared is 66.93. Furthermore, the fund has a Alpha of 0.52 and a Beta of 1.62.
EFA’s Mean Return is 0.10 points higher than that of LQD and its R-squared is 29.85 points higher. With a Standard Deviation of 15.01, EFA is slightly more volatile than LQD. The Alpha and Beta of EFA are 0.05 points lower and 0.64 points lower than LQD’s Alpha and Beta.
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 2019 was the strongest year for LQD, returning 17.13% on an annual basis. The poorest year for LQD in the last ten years was 2018, with a yield of -3.76%. Most years the iShares iBoxx $ Investment Grade Corporate Bond ETF has given investors modest returns, such as in 2017, 2014, and 2011, when gains were 7.16%, 8.57%, and 8.89% 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 LQD, the end total would have been $19,776. This equates to a $9,776 profit over 11 years and a compound annual growth rate (CAGR) of 6.58%.
EFA’s CAGR is 0.11 percentage points lower than that of LQD and as a result, would have yielded $1,507 less on a $10,000 investment. Thus, EFA performed worse than LQD by 0.11% annually.
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.