EFA vs. VCSH: What’s The Difference?

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%).

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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%.

VCSH - Holdings

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.

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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.

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Performance

Annual Returns

EFA vs. VCSH - 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

EFA vs. VCSH - 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.


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