The iShares MSCI EAFE ETF (EFA) and the iShares TIPS Bond ETF (TIP) are both among the Top 100 ETFs. EFA is a iShares Foreign Large Blend fund and TIP is a iShares Inflation-Protected Bond fund. So, what’s the difference between EFA and TIP? And which fund is better?
The expense ratio of EFA is 0.13 percentage points higher than TIP’s (0.32% vs. 0.19%). EFA also has a high exposure to the financial services sector while TIP is mostly comprised of AAA bonds. Overall, EFA has provided higher returns than TIP over the past ten years.
In this article, we’ll compare EFA vs. TIP. We’ll look at performance and holdings, as well as at their risk metrics and portfolio growth. Moreover, I’ll also discuss EFA’s and TIP’s annual returns, industry exposure, and fund composition and examine how these affect their overall returns.
|Name||iShares MSCI EAFE ETF||iShares TIPS Bond ETF|
|Category||Foreign Large Blend||Inflation-Protected 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 TIPS Bond ETF (TIP) is a Inflation-Protected Bond fund that is issued by iShares. It currently has 28.3B total assets under management and has yielded an average annual return of 4.07% over the past 10 years. The fund has a dividend yield of 1.87% with an expense ratio of 0.19%.
EFA’s dividend yield is 0.41% higher than that of TIP (2.28% vs. 1.87%). Also, EFA yielded on average 2.40% more per year over the past decade (6.47% vs. 4.07%). The expense ratio of EFA is 0.13 percentage points higher than TIP’s (0.32% vs. 0.19%).
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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%.
|TIP Bond Sectors||Weight|
TIP’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.31%, 0.69%, 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 R-squared of 96.78 with a Sharpe Ratio of 0.41 and a Treynor Ratio of 5.33. Its Alpha is 0.47 while EFA’s Standard Deviation is 15.01. Furthermore, the fund has a Mean Return of 0.57 and a Beta of 0.98.
The iShares TIPS Bond ETF (TIP) has a Mean Return of 0.28 with a Standard Deviation of 4.33 and a Sharpe Ratio of 0.62. Its Beta is 1.18 while TIP’s R-squared is 66.57. Furthermore, the fund has a Alpha of -0.58 and a Treynor Ratio of 2.24.
EFA’s Mean Return is 0.29 points higher than that of TIP and its R-squared is 30.21 points higher. With a Standard Deviation of 15.01, EFA is slightly more volatile than TIP. The Alpha and Beta of EFA are 1.05 points higher and 0.20 points lower than TIP’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 2011 was the strongest year for TIP, returning 13.4% on an annual basis. The poorest year for TIP in the last ten years was 2013, with a yield of -8.65%. Most years the iShares TIPS Bond ETF has given investors modest returns, such as in 2014, 2016, and 2010, when gains were 3.49%, 4.56%, and 6.1% 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 TIP, the end total would have been $15,229. This equates to a $5,229 profit over 11 years and a compound annual growth rate (CAGR) of 4.07%.
EFA’s CAGR is 2.40 percentage points higher than that of TIP and as a result, would have yielded $3,040 more on a $10,000 investment. Thus, EFA outperformed TIP by 2.40% annually.
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