EFA vs. TLT: What’s The Difference?

The iShares MSCI EAFE ETF (EFA) and the iShares 20+ Year Treasury Bond ETF (TLT) are both among the Top 100 ETFs. EFA is a iShares Foreign Large Blend fund and TLT is a iShares Long Government fund. So, what’s the difference between EFA and TLT? And which fund is better?

The expense ratio of EFA is 0.17 percentage points higher than TLT’s (0.32% vs. 0.15%). EFA also has a high exposure to the financial services sector while TLT is mostly comprised of AAA bonds. Overall, EFA has provided lower returns than TLT over the past ten years.

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

Summary

EFA TLT
Name iShares MSCI EAFE ETF iShares 20+ Year Treasury Bond ETF
Category Foreign Large Blend Long Government
Issuer iShares iShares
AUM 56.77B 15.15B
Avg. Return 6.47% 9.00%
Div. Yield 2.28% 1.5%
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 20+ Year Treasury Bond ETF (TLT) is a Long Government fund that is issued by iShares. It currently has 15.15B total assets under management and has yielded an average annual return of 9.00% over the past 10 years. The fund has a dividend yield of 1.5% with an expense ratio of 0.15%.

EFA’s dividend yield is 0.78% higher than that of TLT (2.28% vs. 1.5%). Also, EFA yielded on average 2.53% less per year over the past decade (6.47% vs. 9.00%). The expense ratio of EFA is 0.17 percentage points higher than TLT’s (0.32% vs. 0.15%).

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Fund Composition

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%.

TLT - Holdings

TLT Bond Sectors Weight
AAA 100.0%
Others 0.0%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

TLT’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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Risk Analysis

EFA TLT
Mean Return 0.57 0.63
R-squared 96.78 68.76
Std. Deviation 15.01 12.76
Alpha 0.47 -2.83
Beta 0.98 3.54
Sharpe Ratio 0.41 0.55
Treynor Ratio 5.33 1.82

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

The iShares 20+ Year Treasury Bond ETF (TLT) has a Standard Deviation of 12.76 with a Beta of 3.54 and a Alpha of -2.83. Its Mean Return is 0.63 while TLT’s R-squared is 68.76. Furthermore, the fund has a Treynor Ratio of 1.82 and a Sharpe Ratio of 0.55.

EFA’s Mean Return is 0.06 points lower than that of TLT and its R-squared is 28.02 points higher. With a Standard Deviation of 15.01, EFA is slightly more volatile than TLT. The Alpha and Beta of EFA are 3.30 points higher and 2.56 points lower than TLT’s Alpha and Beta.

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Performance

Annual Returns

EFA vs. TLT - Annual Returns

Year EFA TLT
2020 7.92% 17.92%
2019 21.94% 14.93%
2018 -13.83% -2.07%
2017 24.94% 8.92%
2016 0.96% 1.36%
2015 -0.9% -1.65%
2014 -5.04% 27.35%
2013 22.62% -13.91%
2012 17.22% 3.25%
2011 -12.18% 33.6%
2010 7.52% 9.25%

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 TLT, returning 33.6% on an annual basis. The poorest year for TLT in the last ten years was 2013, with a yield of -13.91%. Most years the iShares 20+ Year Treasury Bond ETF has given investors modest returns, such as in 2012, 2017, and 2010, when gains were 3.25%, 8.92%, and 9.25% respectively.

Portfolio Growth

EFA vs. TLT - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EFA $10,000 $18,269 6.47%
TLT $10,000 $23,809 9.00%

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 TLT, the end total would have been $23,809. This equates to a $13,809 profit over 11 years and a compound annual growth rate (CAGR) of 9.00%.

EFA’s CAGR is 2.53 percentage points lower than that of TLT and as a result, would have yielded $5,540 less on a $10,000 investment. Thus, EFA performed worse than TLT by 2.53% annually.


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