EFA vs. QUAL: What’s The Difference?

The iShares MSCI EAFE ETF (EFA) and the iShares MSCI USA Quality Factor ETF (QUAL) are both among the Top 100 ETFs. EFA is a iShares Foreign Large Blend fund and QUAL is a iShares Large Blend fund. So, what’s the difference between EFA and QUAL? And which fund is better?

The expense ratio of EFA is 0.17 percentage points higher than QUAL’s (0.32% vs. 0.15%). EFA also has a higher exposure to the financial services sector and a higher standard deviation. Overall, EFA has provided lower returns than QUAL over the past ten years.

In this article, we’ll compare EFA vs. QUAL. We’ll look at fund composition and portfolio growth, as well as at their holdings and risk metrics. Moreover, I’ll also discuss EFA’s and QUAL’s annual returns, industry exposure, and performance and examine how these affect their overall returns.

Summary

EFA QUAL
Name iShares MSCI EAFE ETF iShares MSCI USA Quality Factor ETF
Category Foreign Large Blend Large Blend
Issuer iShares iShares
AUM 56.77B 23.93B
Avg. Return 6.47% 13.42%
Div. Yield 2.28% 1.29%
Expense Ratio 0.32% 0.15%

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 MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.

EFA’s dividend yield is 0.99% higher than that of QUAL (2.28% vs. 1.29%). Also, EFA yielded on average 6.95% less per year over the past decade (6.47% vs. 13.42%). The expense ratio of EFA is 0.17 percentage points higher than QUAL’s (0.32% vs. 0.15%).

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Fund Composition

Industry Exposure

EFA vs. QUAL - Industry Exposure

EFA QUAL
Technology 9.68% 22.52%
Industrials 15.01% 9.22%
Energy 3.51% 2.24%
Communication Services 5.68% 11.44%
Utilities 3.35% 2.41%
Healthcare 12.8% 13.22%
Consumer Defensive 10.56% 8.57%
Real Estate 3.01% 2.72%
Financial Services 16.88% 15.87%
Consumer Cyclical 11.62% 9.43%
Basic Materials 7.91% 2.35%

The iShares MSCI EAFE ETF (EFA) has the most exposure to the Financial Services sector at 16.88%. This is followed by Industrials and Healthcare at 15.01% and 12.8% respectively. Utilities (3.35%), Energy (3.51%), and Communication Services (5.68%) only make up 12.54% of the fund’s total assets.

EFA’s mid-section with moderate exposure is comprised of Basic Materials, Technology, Consumer Defensive, Consumer Cyclical, and Healthcare stocks at 7.91%, 9.68%, 10.56%, 11.62%, and 12.8%.

The iShares MSCI USA Quality Factor ETF (QUAL) has the most exposure to the Technology sector at 22.52%. This is followed by Financial Services and Healthcare at 15.87% and 13.22% respectively. Basic Materials (2.35%), Utilities (2.41%), and Real Estate (2.72%) only make up 7.48% of the fund’s total assets.

QUAL’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Consumer Cyclical, Communication Services, and Healthcare stocks at 8.57%, 9.22%, 9.43%, 11.44%, and 13.22%.

EFA is 1.01% more exposed to the Financial Services sector than QUAL (16.88% vs 15.87%). EFA’s exposure to Industrials and Healthcare stocks is 5.79% higher and 0.42% lower respectively (15.01% vs. 9.22% and 12.8% vs. 13.22%). In total, Utilities, Energy, and Communication Services also make up 3.55% less of the fund’s holdings compared to QUAL (12.54% vs. 16.09%).

Holdings

EFA - Holdings

EFA Holdings Weight
Nestle SA 2.11%
ASML Holding NV 1.69%
Roche Holding AG 1.55%
LVMH Moet Hennessy Louis Vuitton SE 1.28%
Novartis AG 1.19%
Toyota Motor Corp 1.09%
AstraZeneca PLC 0.92%
Unilever PLC 0.9%
AIA Group Ltd 0.88%
SAP SE 0.86%

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%.

QUAL - Holdings

QUAL Holdings Weight
Facebook Inc Class A 4.77%
Nike Inc Class B 4.05%
Microsoft Corp 3.54%
Apple Inc 3.52%
Johnson & Johnson 2.99%
BlackRock Inc 2.87%
Target Corp 2.8%
Mastercard Inc Class A 2.72%
NVIDIA Corp 2.71%
Alphabet Inc Class A 2.49%

QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.

BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.

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Risk Analysis

EFA QUAL
Mean Return 0.57 0
R-squared 96.78 0
Std. Deviation 15.01 0
Alpha 0.47 0
Beta 0.98 0
Sharpe Ratio 0.41 0
Treynor Ratio 5.33 0

The iShares MSCI EAFE ETF (EFA) has a Sharpe Ratio of 0.41 with a Treynor Ratio of 5.33 and a R-squared of 96.78. Its Alpha is 0.47 while EFA’s Beta is 0.98. Furthermore, the fund has a Standard Deviation of 15.01 and a Mean Return of 0.57.

The iShares MSCI USA Quality Factor ETF (QUAL) has a Mean Return of 0 with a Alpha of 0 and a R-squared of 0. Its Treynor Ratio is 0 while QUAL’s Standard Deviation is 0. Furthermore, the fund has a Sharpe Ratio of 0 and a Beta of 0.

EFA’s Mean Return is 0.57 points higher than that of QUAL and its R-squared is 96.78 points higher. With a Standard Deviation of 15.01, EFA is slightly more volatile than QUAL. The Alpha and Beta of EFA are 0.47 points higher and 0.98 points higher than QUAL’s Alpha and Beta.

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Performance

Annual Returns

EFA vs. QUAL - Annual Returns

Year EFA QUAL
2020 7.92% 16.96%
2019 21.94% 34.14%
2018 -13.83% -5.77%
2017 24.94% 22.26%
2016 0.96% 9.18%
2015 -0.9% 5.56%
2014 -5.04% 11.62%
2013 22.62% 0.0%
2012 17.22% 0.0%
2011 -12.18% 0.0%
2010 7.52% 0.0%

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 QUAL, returning 34.14% on an annual basis. The poorest year for QUAL in the last ten years was 2018, with a yield of -5.77%. Most years the iShares MSCI USA Quality Factor ETF has given investors modest returns, such as in 2010, 2015, and 2016, when gains were 0.0%, 5.56%, and 9.18% respectively.

Portfolio Growth

EFA vs. QUAL - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EFA $10,000 $13,460 6.47%
QUAL $10,000 $23,251 13.42%

A $10,000 investment in EFA would have resulted in a final balance of $13,460. This is a profit of $3,460 over 7 years and amounts to a compound annual growth rate (CAGR) of 6.47%.

With a $10,000 investment in QUAL, the end total would have been $23,251. This equates to a $13,251 profit over 7 years and a compound annual growth rate (CAGR) of 13.42%.

EFA’s CAGR is 6.95 percentage points lower than that of QUAL and as a result, would have yielded $9,791 less on a $10,000 investment. Thus, EFA performed worse than QUAL by 6.95% annually.


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