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.
|Name||iShares MSCI EAFE ETF||Vanguard Real Estate Index Fund ETF Shares|
|Category||Foreign Large Blend||Real Estate|
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%).
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%).
|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%.
|Vanguard Real Estate II Index||11.62%|
|American Tower Corp||7.24%|
|Crown Castle International Corp||5.01%|
|Simon Property Group Inc||2.52%|
|Digital Realty Trust Inc||2.49%|
|SBA Communications Corp||2.1%|
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%.
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.
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.
|Fund||Initial Balance||Final Balance||CAGR|
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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