The iShares MSCI EAFE ETF (EFA) and the Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) are both among the Top 100 ETFs. EFA is a iShares Foreign Large Blend fund and VCIT is a Vanguard Corporate Bond fund. So, what’s the difference between EFA and VCIT? And which fund is better?
The expense ratio of EFA is 0.27 percentage points higher than VCIT’s (0.32% vs. 0.05%). EFA also has a high exposure to the financial services sector while VCIT is mostly comprised of BBB bonds. Overall, EFA has provided higher returns than VCIT over the past ten years.
In this article, we’ll compare EFA vs. VCIT. We’ll look at risk metrics and holdings, as well as at their annual returns and performance. Moreover, I’ll also discuss EFA’s and VCIT’s portfolio growth, fund composition, and industry exposure and examine how these affect their overall returns.
Summary
| EFA | VCIT | |
| NameiShares MSCI EAFE ETFVanguard Intermediate-Term Corporate Bond Index Fund ETF Shares | ||
| Category | Foreign Large Blend | Corporate Bond |
| Issuer | iShares | Vanguard |
| AUM | 56.77B | 48.39B |
| Avg. Return | 6.47% | 5.84% |
| Div. Yield | 2.28% | 2.33% |
| Expense Ratio | 0.32% | 0.05% |
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 Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) is a Corporate Bond fund that is issued by Vanguard. It currently has 48.39B total assets under management and has yielded an average annual return of 5.84% over the past 10 years. The fund has a dividend yield of 2.33% with an expense ratio of 0.05%.
EFA’s dividend yield is 0.05% lower than that of VCIT (2.28% vs. 2.33%). Also, EFA yielded on average 0.63% more per year over the past decade (6.47% vs. 5.84%). The expense ratio of EFA is 0.27 percentage points higher than VCIT’s (0.32% vs. 0.05%).
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%.
| VCIT Bond Sectors | Weight |
| BBB | 55.28% |
| A | 37.85% |
| AA | 5.22% |
| AAA | 1.57% |
| Below B | 0.08% |
| Others | 0.0% |
| B | 0.0% |
| BB | 0.0% |
| US Government | 0.0% |
VCIT’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and Below B at 55.28%, 37.85%, 5.22%, 1.57%, and 0.08%. The fund is less weighted towards Others (0.0%), B (0.0%), and BB (0.0%) rated bonds.
Risk Analysis
| EFA | VCIT | |
| Mean Return | 0.57 | 0.44 |
| R-squared | 96.78 | 63.18 |
| Std. Deviation | 15.01 | 5.08 |
| Alpha | 0.47 | 0.89 |
| Beta | 0.98 | 1.35 |
| Sharpe Ratio | 0.41 | 0.91 |
| Treynor Ratio | 5.33 | 3.43 |
The iShares MSCI EAFE ETF (EFA) has a Treynor Ratio of 5.33 with a Sharpe Ratio of 0.41 and a Standard Deviation of 15.01. Its R-squared is 96.78 while EFA’s Mean Return is 0.57. Furthermore, the fund has a Alpha of 0.47 and a Beta of 0.98.
The Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares (VCIT) has a Beta of 1.35 with a Alpha of 0.89 and a Mean Return of 0.44. Its Treynor Ratio is 3.43 while VCIT’s R-squared is 63.18. Furthermore, the fund has a Standard Deviation of 5.08 and a Sharpe Ratio of 0.91.
EFA’s Mean Return is 0.13 points higher than that of VCIT and its R-squared is 33.60 points higher. With a Standard Deviation of 15.01, EFA is slightly more volatile than VCIT. The Alpha and Beta of EFA are 0.42 points lower and 0.37 points lower than VCIT’s Alpha and Beta.
Performance
Annual Returns
| Year | EFA | VCIT |
| 2020 | 7.92% | 9.55% |
| 2019 | 21.94% | 13.97% |
| 2018 | -13.83% | -1.75% |
| 2017 | 24.94% | 5.5% |
| 2016 | 0.96% | 5.3% |
| 2015 | -0.9% | 0.88% |
| 2014 | -5.04% | 7.47% |
| 2013 | 22.62% | -1.8% |
| 2012 | 17.22% | 11.36% |
| 2011 | -12.18% | 7.94% |
| 2010 | 7.52% | 10.65% |
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 VCIT, returning 13.97% on an annual basis. The poorest year for VCIT in the last ten years was 2013, with a yield of -1.8%. Most years the Vanguard Intermediate-Term Corporate Bond Index Fund ETF Shares has given investors modest returns, such as in 2017, 2014, and 2011, when gains were 5.5%, 7.47%, and 7.94% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| EFA | $10,000 | $16,991 | 6.47% |
| VCIT | $10,000 | $17,439 | 5.84% |
A $10,000 investment in EFA would have resulted in a final balance of $16,991. This is a profit of $6,991 over 10 years and amounts to a compound annual growth rate (CAGR) of 6.47%.
With a $10,000 investment in VCIT, the end total would have been $17,439. This equates to a $7,439 profit over 10 years and a compound annual growth rate (CAGR) of 5.84%.
EFA’s CAGR is 0.63 percentage points higher than that of VCIT and as a result, would have yielded $448 less on a $10,000 investment. Thus, EFA outperformed VCIT by 0.63% annually.
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