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.
Summary
| EFA | TIP | |
| Name | iShares MSCI EAFE ETF | iShares TIPS Bond ETF |
| Category | Foreign Large Blend | Inflation-Protected Bond |
| Issuer | iShares | iShares |
| AUM | 56.77B | 28.3B |
| Avg. Return | 6.47% | 4.07% |
| Div. Yield | 2.28% | 1.87% |
| Expense Ratio | 0.32% | 0.19% |
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%).
Fund Composition
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%.
| TIP Bond Sectors | Weight |
| AAA | 99.31% |
| Others | 0.69% |
| Below B | 0.0% |
| B | 0.0% |
| BB | 0.0% |
| BBB | 0.0% |
| A | 0.0% |
| AA | 0.0% |
| US Government | 0.0% |
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.
Risk Analysis
| EFA | TIP | |
| Mean Return | 0.57 | 0.28 |
| R-squared | 96.78 | 66.57 |
| Std. Deviation | 15.01 | 4.33 |
| Alpha | 0.47 | -0.58 |
| Beta | 0.98 | 1.18 |
| Sharpe Ratio | 0.41 | 0.62 |
| Treynor Ratio | 5.33 | 2.24 |
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.
Performance
Annual Returns
| Year | EFA | TIP |
| 2020 | 7.92% | 10.91% |
| 2019 | 21.94% | 8.28% |
| 2018 | -13.83% | -1.43% |
| 2017 | 24.94% | 2.92% |
| 2016 | 0.96% | 4.56% |
| 2015 | -0.9% | -1.59% |
| 2014 | -5.04% | 3.49% |
| 2013 | 22.62% | -8.65% |
| 2012 | 17.22% | 6.8% |
| 2011 | -12.18% | 13.4% |
| 2010 | 7.52% | 6.1% |
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.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| EFA | $10,000 | $18,269 | 6.47% |
| TIP | $10,000 | $15,229 | 4.07% |
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.
Current recommendations:
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.
I believe that money is just a means to an end: to be free to spend your time as you wish, to maximize your positive impact on the world.
