The iShares MSCI EAFE ETF (EFA) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. EFA is a iShares Foreign Large Blend fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between EFA and VMBS? And which fund is better?
The expense ratio of EFA is 0.27 percentage points higher than VMBS’s (0.32% vs. 0.05%). EFA also has a high exposure to the financial services sector while VMBS is mostly comprised of AAA bonds. Overall, EFA has provided higher returns than VMBS over the past ten years.
In this article, we’ll compare EFA vs. VMBS. 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 VMBS’s fund composition, industry exposure, and portfolio growth and examine how these affect their overall returns.
|Name||iShares MSCI EAFE ETF||Vanguard Mortgage-Backed Securities Index Fund ETF Shares|
|Category||Foreign Large Blend||Intermediate Government|
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 Mortgage-Backed Securities Index Fund ETF Shares (VMBS) is a Intermediate Government fund that is issued by Vanguard. It currently has 16.61B total assets under management and has yielded an average annual return of 2.89% over the past 10 years. The fund has a dividend yield of 1.23% with an expense ratio of 0.05%.
EFA’s dividend yield is 1.05% higher than that of VMBS (2.28% vs. 1.23%). Also, EFA yielded on average 3.58% more per year over the past decade (6.47% vs. 2.89%). The expense ratio of EFA is 0.27 percentage points higher than VMBS’s (0.32% vs. 0.05%).
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|ASML Holding NV||1.69%|
|Roche Holding AG||1.55%|
|LVMH Moet Hennessy Louis Vuitton SE||1.28%|
|Toyota Motor Corp||1.09%|
|AIA Group Ltd||0.88%|
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%.
|VMBS Bond Sectors||Weight|
VMBS’s Top Bond Sectors are ratings of AAA, Below B, B, BB, and BBB at 100.01%, 0.0%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.
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The iShares MSCI EAFE ETF (EFA) has a Beta of 0.98 with a Mean Return of 0.57 and a Treynor Ratio of 5.33. Its R-squared is 96.78 while EFA’s Alpha is 0.47. Furthermore, the fund has a Standard Deviation of 15.01 and a Sharpe Ratio of 0.41.
The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a Beta of 0.54 with a Treynor Ratio of 3.47 and a Mean Return of 0.21. Its Standard Deviation is 2.02 while VMBS’s R-squared is 65.78. Furthermore, the fund has a Alpha of 0.37 and a Sharpe Ratio of 0.94.
EFA’s Mean Return is 0.36 points higher than that of VMBS and its R-squared is 31.00 points higher. With a Standard Deviation of 15.01, EFA is slightly more volatile than VMBS. The Alpha and Beta of EFA are 0.10 points higher and 0.44 points higher than VMBS’s Alpha and Beta.
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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 VMBS, returning 6.17% on an annual basis. The poorest year for VMBS in the last ten years was 2013, with a yield of -1.28%. Most years the Vanguard Mortgage-Backed Securities Index Fund ETF Shares has given investors modest returns, such as in 2017, 2012, and 2020, when gains were 2.37%, 2.47%, and 3.77% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
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 VMBS, the end total would have been $13,265. This equates to a $3,265 profit over 10 years and a compound annual growth rate (CAGR) of 2.89%.
EFA’s CAGR is 3.58 percentage points higher than that of VMBS and as a result, would have yielded $3,726 more on a $10,000 investment. Thus, EFA outperformed VMBS by 3.58% annually.
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