The iShares MSCI EAFE ETF (EFA) and the Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) are both among the Top 100 ETFs. EFA is a iShares Foreign Large Blend fund and VCSH is a Vanguard Short-Term Bond fund. So, what’s the difference between EFA and VCSH? And which fund is better?
The expense ratio of EFA is 0.27 percentage points higher than VCSH’s (0.32% vs. 0.05%). EFA also has a high exposure to the financial services sector while VCSH is mostly comprised of BBB bonds. Overall, EFA has provided higher returns than VCSH over the past ten years.
In this article, we’ll compare EFA vs. VCSH. We’ll look at risk metrics and holdings, as well as at their performance and industry exposure. Moreover, I’ll also discuss EFA’s and VCSH’s portfolio growth, annual returns, and fund composition and examine how these affect their overall returns.
Summary
| EFA | VCSH | |
| Name | iShares MSCI EAFE ETF | Vanguard Short-Term Corporate Bond Index Fund ETF Shares |
| Category | Foreign Large Blend | Short-Term Bond |
| Issuer | iShares | Vanguard |
| AUM | 56.77B | 47.88B |
| Avg. Return | 6.47% | 3.12% |
| Div. Yield | 2.28% | 1.89% |
| 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 Short-Term Corporate Bond Index Fund ETF Shares (VCSH) is a Short-Term Bond fund that is issued by Vanguard. It currently has 47.88B total assets under management and has yielded an average annual return of 3.12% over the past 10 years. The fund has a dividend yield of 1.89% with an expense ratio of 0.05%.
EFA’s dividend yield is 0.39% higher than that of VCSH (2.28% vs. 1.89%). Also, EFA yielded on average 3.35% more per year over the past decade (6.47% vs. 3.12%). The expense ratio of EFA is 0.27 percentage points higher than VCSH’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%.
| VCSH Bond Sectors | Weight |
| BBB | 47.49% |
| A | 43.06% |
| AA | 8.45% |
| AAA | 0.95% |
| Below B | 0.03% |
| Others | 0.02% |
| B | 0.0% |
| BB | 0.0% |
| US Government | 0.0% |
VCSH’s Top Bond Sectors are ratings of BBB, A, AA, AAA, and Below B at 47.49%, 43.06%, 8.45%, 0.95%, and 0.03%. The fund is less weighted towards Others (0.02%), B (0.0%), and BB (0.0%) rated bonds.
Risk Analysis
| EFA | VCSH | |
| Mean Return | 0.57 | 0.24 |
| R-squared | 96.78 | 37.53 |
| Std. Deviation | 15.01 | 2.34 |
| Alpha | 0.47 | 0.93 |
| Beta | 0.98 | 0.48 |
| Sharpe Ratio | 0.41 | 0.97 |
| Treynor Ratio | 5.33 | 4.75 |
The iShares MSCI EAFE ETF (EFA) has a Beta of 0.98 with a Alpha of 0.47 and a R-squared of 96.78. Its Treynor Ratio is 5.33 while EFA’s Mean Return is 0.57. Furthermore, the fund has a Standard Deviation of 15.01 and a Sharpe Ratio of 0.41.
The Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) has a Mean Return of 0.24 with a Treynor Ratio of 4.75 and a Alpha of 0.93. Its R-squared is 37.53 while VCSH’s Beta is 0.48. Furthermore, the fund has a Standard Deviation of 2.34 and a Sharpe Ratio of 0.97.
EFA’s Mean Return is 0.33 points higher than that of VCSH and its R-squared is 59.25 points higher. With a Standard Deviation of 15.01, EFA is slightly more volatile than VCSH. The Alpha and Beta of EFA are 0.46 points lower and 0.50 points higher than VCSH’s Alpha and Beta.
Performance
Annual Returns
| Year | EFA | VCSH |
| 2020 | 7.92% | 5.08% |
| 2019 | 21.94% | 6.85% |
| 2018 | -13.83% | 0.91% |
| 2017 | 24.94% | 2.45% |
| 2016 | 0.96% | 2.63% |
| 2015 | -0.9% | 1.25% |
| 2014 | -5.04% | 1.96% |
| 2013 | 22.62% | 1.37% |
| 2012 | 17.22% | 5.74% |
| 2011 | -12.18% | 2.94% |
| 2010 | 7.52% | 5.51% |
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 VCSH, returning 6.85% on an annual basis. The poorest year for VCSH in the last ten years was 2018, with a yield of 0.91%. Most years the Vanguard Short-Term Corporate Bond Index Fund ETF Shares has given investors modest returns, such as in 2017, 2016, and 2011, when gains were 2.45%, 2.63%, and 2.94% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| EFA | $10,000 | $16,991 | 6.47% |
| VCSH | $10,000 | $13,569 | 3.12% |
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 VCSH, the end total would have been $13,569. This equates to a $3,569 profit over 10 years and a compound annual growth rate (CAGR) of 3.12%.
EFA’s CAGR is 3.35 percentage points higher than that of VCSH and as a result, would have yielded $3,422 more on a $10,000 investment. Thus, EFA outperformed VCSH by 3.35% 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.
