The iShares MSCI EAFE ETF (EFA) and the Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) are both among the Top 100 ETFs. EFA is a iShares Foreign Large Blend fund and VEU is a Vanguard Foreign Large Blend fund. So, what’s the difference between EFA and VEU? And which fund is better?
The expense ratio of EFA is 0.24 percentage points higher than VEU’s (0.32% vs. 0.08%). EFA also has a lower exposure to the financial services sector and a lower standard deviation. Overall, EFA has provided lower returns than VEU over the past ten years.
In this article, we’ll compare EFA vs. VEU. We’ll look at holdings and portfolio growth, as well as at their industry exposure and fund composition. Moreover, I’ll also discuss EFA’s and VEU’s annual returns, risk metrics, and performance and examine how these affect their overall returns.
Summary
| EFA | VEU | |
| Name | iShares MSCI EAFE ETF | Vanguard FTSE All-World ex-US Index Fund ETF Shares |
| Category | Foreign Large Blend | Foreign Large Blend |
| Issuer | iShares | Vanguard |
| AUM | 56.77B | 53.64B |
| Avg. Return | 6.47% | 6.64% |
| Div. Yield | 2.28% | 2.31% |
| Expense Ratio | 0.32% | 0.08% |
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 FTSE All-World ex-US Index Fund ETF Shares (VEU) is a Foreign Large Blend fund that is issued by Vanguard. It currently has 53.64B total assets under management and has yielded an average annual return of 6.64% over the past 10 years. The fund has a dividend yield of 2.31% with an expense ratio of 0.08%.
EFA’s dividend yield is 0.03% lower than that of VEU (2.28% vs. 2.31%). Also, EFA yielded on average 0.17% less per year over the past decade (6.47% vs. 6.64%). The expense ratio of EFA is 0.24 percentage points higher than VEU’s (0.32% vs. 0.08%).
Fund Composition
Industry Exposure
| EFA | VEU | |
| Technology | 9.68% | 12.94% |
| Industrials | 15.01% | 12.19% |
| Energy | 3.51% | 4.69% |
| Communication Services | 5.68% | 7.44% |
| Utilities | 3.35% | 2.89% |
| Healthcare | 12.8% | 9.34% |
| Consumer Defensive | 10.56% | 8.28% |
| Real Estate | 3.01% | 3.04% |
| Financial Services | 16.88% | 18.46% |
| Consumer Cyclical | 11.62% | 12.57% |
| Basic Materials | 7.91% | 8.17% |
The iShares MSCI EAFE ETF (EFA) has the most exposure to the Financial Services sector at 16.88%. This is followed by Industrials and Healthcare at 15.01% and 12.8% respectively. Utilities (3.35%), Energy (3.51%), and Communication Services (5.68%) only make up 12.54% of the fund’s total assets.
EFA’s mid-section with moderate exposure is comprised of Basic Materials, Technology, Consumer Defensive, Consumer Cyclical, and Healthcare stocks at 7.91%, 9.68%, 10.56%, 11.62%, and 12.8%.
The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) has the most exposure to the Financial Services sector at 18.46%. This is followed by Technology and Consumer Cyclical at 12.94% and 12.57% respectively. Real Estate (3.04%), Energy (4.69%), and Communication Services (7.44%) only make up 15.17% of the fund’s total assets.
VEU’s mid-section with moderate exposure is comprised of Basic Materials, Consumer Defensive, Healthcare, Industrials, and Consumer Cyclical stocks at 8.17%, 8.28%, 9.34%, 12.19%, and 12.57%.
EFA is 1.58% less exposed to the Financial Services sector than VEU (16.88% vs 18.46%). EFA’s exposure to Industrials and Healthcare stocks is 2.82% higher and 3.46% higher respectively (15.01% vs. 12.19% and 12.8% vs. 9.34%). In total, Utilities, Energy, and Communication Services also make up 2.48% less of the fund’s holdings compared to VEU (12.54% vs. 15.02%).
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%.
| VEU Holdings | Weight |
| Tencent Holdings Ltd | 1.57% |
| Alibaba Group Holding Ltd Ordinary Shares | 1.4% |
| Nestle SA | 1.22% |
| Taiwan Semiconductor Manufacturing Co Ltd | 0.98% |
| ASML Holding NV | 0.95% |
| Taiwan Semiconductor Manufacturing Co Ltd ADR | 0.91% |
| Roche Holding AG | 0.91% |
| Toyota Motor Corp | 0.75% |
| LVMH Moet Hennessy Louis Vuitton SE | 0.68% |
| Novartis AG | 0.67% |
VEU’s Top Holdings are Tencent Holdings Ltd, Alibaba Group Holding Ltd Ordinary Shares, Nestle SA, Taiwan Semiconductor Manufacturing Co Ltd, and ASML Holding NV at 1.57%, 1.4%, 1.22%, 0.98%, and 0.95%.
Taiwan Semiconductor Manufacturing Co Ltd ADR (0.91%), Roche Holding AG (0.91%), and Toyota Motor Corp (0.75%) have a slightly smaller but still significant weight. LVMH Moet Hennessy Louis Vuitton SE and Novartis AG are also represented in the VEU’s holdings at 0.68% and 0.67%.
Risk Analysis
| EFA | VEU | |
| Mean Return | 0.57 | 0.56 |
| R-squared | 96.78 | 98.44 |
| Std. Deviation | 15.01 | 15.08 |
| Alpha | 0.47 | 0.28 |
| Beta | 0.98 | 0.99 |
| Sharpe Ratio | 0.41 | 0.4 |
| Treynor Ratio | 5.33 | 5.12 |
The iShares MSCI EAFE ETF (EFA) has a Treynor Ratio of 5.33 with a R-squared of 96.78 and a Standard Deviation of 15.01. Its Beta is 0.98 while EFA’s Mean Return is 0.57. Furthermore, the fund has a Sharpe Ratio of 0.41 and a Alpha of 0.47.
The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) has a Standard Deviation of 15.08 with a Treynor Ratio of 5.12 and a Mean Return of 0.56. Its Beta is 0.99 while VEU’s R-squared is 98.44. Furthermore, the fund has a Sharpe Ratio of 0.4 and a Alpha of 0.28.
EFA’s Mean Return is 0.01 points higher than that of VEU and its R-squared is 1.66 points lower. With a Standard Deviation of 15.01, EFA is slightly less volatile than VEU. The Alpha and Beta of EFA are 0.19 points higher and 0.01 points lower than VEU’s Alpha and Beta.
Performance
Annual Returns
| Year | EFA | VEU |
| 2020 | 7.92% | 11.39% |
| 2019 | 21.94% | 21.63% |
| 2018 | -13.83% | -13.97% |
| 2017 | 24.94% | 27.27% |
| 2016 | 0.96% | 4.77% |
| 2015 | -0.9% | -4.67% |
| 2014 | -5.04% | -4.05% |
| 2013 | 22.62% | 14.5% |
| 2012 | 17.22% | 18.55% |
| 2011 | -12.18% | -14.25% |
| 2010 | 7.52% | 11.85% |
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 2017 was the strongest year for VEU, returning 27.27% on an annual basis. The poorest year for VEU in the last ten years was 2011, with a yield of -14.25%. Most years the Vanguard FTSE All-World ex-US Index Fund ETF Shares has given investors modest returns, such as in 2016, 2020, and 2010, when gains were 4.77%, 11.39%, and 11.85% respectively.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| EFA | $10,000 | $18,269 | 6.47% |
| VEU | $10,000 | $18,507 | 6.64% |
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 VEU, the end total would have been $18,507. This equates to a $8,507 profit over 11 years and a compound annual growth rate (CAGR) of 6.64%.
EFA’s CAGR is 0.17 percentage points lower than that of VEU and as a result, would have yielded $238 less on a $10,000 investment. Thus, EFA performed worse than VEU by 0.17% annually.
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