EFA vs. VNQ: What’s The Difference?

The iShares MSCI EAFE ETF (EFA) and the Vanguard Real Estate Index Fund ETF Shares (VNQ) are both among the Top 100 ETFs. EFA is a iShares Foreign Large Blend fund and VNQ is a Vanguard Real Estate fund. So, what’s the difference between EFA and VNQ? And which fund is better?

The expense ratio of EFA is 0.20 percentage points higher than VNQ’s (0.32% vs. 0.12%). EFA also has a higher exposure to the financial services sector and a lower standard deviation. Overall, EFA has provided lower returns than VNQ over the past ten years.

In this article, we’ll compare EFA vs. VNQ. We’ll look at annual returns and performance, as well as at their portfolio growth and fund composition. Moreover, I’ll also discuss EFA’s and VNQ’s risk metrics, industry exposure, and holdings and examine how these affect their overall returns.

Summary

EFA VNQ
Name iShares MSCI EAFE ETF Vanguard Real Estate Index Fund ETF Shares
Category Foreign Large Blend Real Estate
Issuer iShares Vanguard
AUM 56.77B 77.34B
Avg. Return 6.47% 11.05%
Div. Yield 2.28% 2.34%
Expense Ratio 0.32% 0.12%

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 Real Estate Index Fund ETF Shares (VNQ) is a Real Estate fund that is issued by Vanguard. It currently has 77.34B total assets under management and has yielded an average annual return of 11.05% over the past 10 years. The fund has a dividend yield of 2.34% with an expense ratio of 0.12%.

EFA’s dividend yield is 0.06% lower than that of VNQ (2.28% vs. 2.34%). Also, EFA yielded on average 4.58% less per year over the past decade (6.47% vs. 11.05%). The expense ratio of EFA is 0.20 percentage points higher than VNQ’s (0.32% vs. 0.12%).

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Fund Composition

Industry Exposure

EFA vs. VNQ - Industry Exposure

EFA VNQ
Technology 9.68% 0.0%
Industrials 15.01% 0.0%
Energy 3.51% 0.0%
Communication Services 5.68% 0.0%
Utilities 3.35% 0.0%
Healthcare 12.8% 0.0%
Consumer Defensive 10.56% 0.0%
Real Estate 3.01% 100.0%
Financial Services 16.88% 0.0%
Consumer Cyclical 11.62% 0.0%
Basic Materials 7.91% 0.0%

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 Real Estate Index Fund ETF Shares (VNQ) has the most exposure to the Real Estate sector at 100.0%. This is followed by Technology and Industrials at 0.0% and 0.0% respectively. Consumer Cyclical (0.0%), Financial Services (0.0%), and Consumer Defensive (0.0%) only make up 0.00% of the fund’s total assets.

VNQ’s mid-section with moderate exposure is comprised of Healthcare, Utilities, Communication Services, Energy, and Industrials stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.0%.

EFA is 16.88% more exposed to the Financial Services sector than VNQ (16.88% vs 0.0%). EFA’s exposure to Industrials and Healthcare stocks is 15.01% higher and 12.80% higher respectively (15.01% vs. 0.0% and 12.8% vs. 0.0%). In total, Utilities, Energy, and Communication Services also make up 12.54% more of the fund’s holdings compared to VNQ (12.54% vs. 0.00%).

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%.

VNQ - Holdings

VNQ Holdings Weight
Vanguard Real Estate II Index 11.62%
American Tower Corp 7.24%
Prologis Inc 5.33%
Crown Castle International Corp 5.01%
Equinix Inc 4.3%
Public Storage 2.85%
Simon Property Group Inc 2.52%
Digital Realty Trust Inc 2.49%
SBA Communications Corp 2.1%
Welltower Inc 2.09%

VNQ’s Top Holdings are Vanguard Real Estate II Index, American Tower Corp, Prologis Inc, Crown Castle International Corp, and Equinix Inc at 11.62%, 7.24%, 5.33%, 5.01%, and 4.3%.

Public Storage (2.85%), Simon Property Group Inc (2.52%), and Digital Realty Trust Inc (2.49%) have a slightly smaller but still significant weight. SBA Communications Corp and Welltower Inc are also represented in the VNQ’s holdings at 2.1% and 2.09%.

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Risk Analysis

EFA VNQ
Mean Return 0.57 0.89
R-squared 96.78 44.4
Std. Deviation 15.01 16.13
Alpha 0.47 2.47
Beta 0.98 0.76
Sharpe Ratio 0.41 0.62
Treynor Ratio 5.33 11.9

The iShares MSCI EAFE ETF (EFA) has a R-squared of 96.78 with a Mean Return of 0.57 and a Beta of 0.98. Its Treynor Ratio is 5.33 while EFA’s Sharpe Ratio is 0.41. Furthermore, the fund has a Alpha of 0.47 and a Standard Deviation of 15.01.

The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a Standard Deviation of 16.13 with a Beta of 0.76 and a Sharpe Ratio of 0.62. Its Treynor Ratio is 11.9 while VNQ’s Mean Return is 0.89. Furthermore, the fund has a R-squared of 44.4 and a Alpha of 2.47.

EFA’s Mean Return is 0.32 points lower than that of VNQ and its R-squared is 52.38 points higher. With a Standard Deviation of 15.01, EFA is slightly less volatile than VNQ. The Alpha and Beta of EFA are 2.00 points lower and 0.22 points higher than VNQ’s Alpha and Beta.

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Performance

Annual Returns

EFA vs. VNQ - Annual Returns

Year EFA VNQ
2020 7.92% -4.72%
2019 21.94% 28.91%
2018 -13.83% -5.95%
2017 24.94% 4.95%
2016 0.96% 8.53%
2015 -0.9% 2.37%
2014 -5.04% 30.29%
2013 22.62% 2.42%
2012 17.22% 17.67%
2011 -12.18% 8.62%
2010 7.52% 28.44%

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 2014 was the strongest year for VNQ, returning 30.29% on an annual basis. The poorest year for VNQ in the last ten years was 2018, with a yield of -5.95%. Most years the Vanguard Real Estate Index Fund ETF Shares has given investors modest returns, such as in 2017, 2016, and 2011, when gains were 4.95%, 8.53%, and 8.62% respectively.

Portfolio Growth

EFA vs. VNQ - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EFA $10,000 $18,269 6.47%
VNQ $10,000 $29,506 11.05%

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 VNQ, the end total would have been $29,506. This equates to a $19,506 profit over 11 years and a compound annual growth rate (CAGR) of 11.05%.

EFA’s CAGR is 4.58 percentage points lower than that of VNQ and as a result, would have yielded $11,237 less on a $10,000 investment. Thus, EFA performed worse than VNQ by 4.58% annually.


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