EFA vs VXUS: A Comprehensive Comparison

When it comes to investing in international stocks, there are several options to consider.

EFA vs VXUS: Two popular exchange-traded funds (ETFs) that offer exposure to international markets are iShares MSCI EAFE ETF (EFA) and Vanguard Total International Stock ETF (VXUS).

While both funds provide similar exposure, there are some key differences to consider before making an investment decision.

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EFA is designed to track the performance of the MSCI EAFE Index, which includes stocks from developed markets in Europe, Asia, and Australia. VXUS, on the other hand, tracks the FTSE Global All Cap ex US Index, which includes stocks from both developed and emerging markets outside of the United States. This means that VXUS offers broader exposure to international markets, while EFA is more focused on developed markets.

When comparing the two funds, there are several factors to consider, including performance, expense ratios, and holdings. While EFA has a lower expense ratio than VXUS, it has provided lower returns over the past ten years. Additionally, EFA’s biggest holding is Nestle SA, while VXUS’s biggest holding is Taiwan Semiconductor Manufacturing Co Ltd. Ultimately, the decision of which fund to invest in will depend on your investment goals and risk tolerance.

Key Takeaways EFA vs VXUS

  • EFA and VXUS are two popular ETFs that provide exposure to international markets.
  • EFA is more focused on developed markets in Europe, Asia, and Australia, while VXUS offers broader exposure to both developed and emerging markets outside of the United States.
  • When considering which fund to invest in, it’s important to compare factors such as performance, expense ratios, and holdings, and make a decision based on your individual investment goals and risk tolerance.

Overview of EFA vs VXUS

When it comes to investing in international equities, two of the most popular ETFs are the iShares MSCI EAFE ETF (EFA) and the Vanguard Total International Stock ETF (VXUS). Both of these ETFs provide exposure to a broad range of international stocks, but they have some key differences that investors should be aware of.

Understanding EFA

The iShares MSCI EAFE ETF (EFA) is designed to track the performance of the MSCI EAFE Index, which is a benchmark of large and mid-cap stocks in developed markets outside of North America. This index is composed of stocks from 21 developed markets, including Japan, the UK, France, and Germany.

With an expense ratio of 0.32%, EFA is slightly more expensive than some other international ETFs, such as the Vanguard Total International Stock ETF. However, EFA has a long track record of providing investors with exposure to international stocks, and it has a strong reputation in the investment community.

Understanding VXUS

The Vanguard Total International Stock ETF (VXUS) is designed to track the performance of the FTSE Global All Cap ex US Index, which is a benchmark of large, mid, and small-cap stocks in both developed and emerging markets outside of the US. This index is composed of stocks from 46 countries, including both developed and emerging markets.

With an expense ratio of just 0.08%, VXUS is one of the cheapest international ETFs available to investors. This makes it an attractive option for investors who are looking to keep their expenses low. Additionally, VXUS has a strong reputation in the investment community, and it has a long track record of providing investors with exposure to international stocks.

Overall, both EFA and VXUS are excellent options for investors who are looking to add international exposure to their portfolios. However, they have some key differences that investors should be aware of before making a decision. By understanding these differences, you can make an informed decision about which ETF is right for you.

Performance Comparison EFA vs VXUS

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Historical Returns

When comparing EFA vs VXUS, historical returns are an important factor to consider. Over the past 1-year, 3-year, and 5-year periods, VXUS has outperformed EFA in terms of total returns. According to etf.com, VXUS has a 1-year return of 10.93%, a 3-year return of 7.08%, and a 5-year return of 8.10%. In contrast, EFA has a 1-year return of 9.51%, a 3-year return of 5.20%, and a 5-year return of 6.17%.

It’s important to note that past performance does not guarantee future results. However, historical returns can provide insight into how a particular ETF has performed in different market conditions.

Dividend Yield

Another important factor to consider when comparing EFA vs VXUS is dividend yield. According to Minafi, as of December 2023, EFA has a dividend yield of 2.99%, while VXUS has a dividend yield of 2.52%. This means that EFA provides a higher dividend yield than VXUS.

Dividend yield is an important consideration for investors who are looking for a steady stream of income from their investments. However, it’s important to note that dividend yield can fluctuate over time and is not guaranteed.

Overall, when comparing EFA vs VXUS in terms of historical returns and dividend yield, VXUS has outperformed EFA in terms of total returns, while EFA has a higher dividend yield than VXUS.

Fundamentals of Investing in EFA vs VXUS

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If you are considering investing in international stocks, you may be looking at the iShares MSCI EAFE ETF (EFA) and the Vanguard Total International Stock ETF (VXUS). Both ETFs offer exposure to non-U.S. equities, but they have some differences that you should be aware of before investing.

Expense Ratio

One important factor to consider when choosing an ETF is the expense ratio. This is the annual fee charged by the fund to cover its operating expenses. The expense ratio can have a significant impact on your returns over time, so it’s important to choose a fund with a low expense ratio.

EFA has an expense ratio of 0.32%, which is slightly higher than VXUS’s expense ratio of 0.08%. This means that VXUS is the more cost-effective option.

Management Style

Another important factor to consider is the management style of the ETF. EFA is actively managed, which means that a team of portfolio managers makes decisions about which stocks to buy and sell. VXUS, on the other hand, is passively managed, which means that it seeks to track the performance of an index.

Passive management is generally considered to be a more cost-effective and reliable investment strategy, as it eliminates the need for expensive research and analysis. However, active management can sometimes outperform passive management, especially in certain market conditions.

Holdings and Diversification

When investing in an ETF, it’s important to consider the fund’s holdings and diversification. EFA holds around 900 stocks from developed markets in Europe, Australasia, and the Far East, while VXUS holds over 7,000 stocks from both developed and emerging markets.

Both funds are well-diversified across a variety of sectors, with a mix of growth and value stocks. However, VXUS’s broader exposure to emerging markets may make it a better choice for investors looking for higher potential returns, but with higher risk.

In summary, when investing in EFA vs VXUS, you should consider the expense ratio, management style, and holdings and diversification of each fund. VXUS may be the more cost-effective option, but EFA’s active management may provide better returns in certain market conditions. Ultimately, the choice between these two ETFs will depend on your investment goals and risk tolerance.

Risk and Return Metrics

When comparing EFA and VXUS, it’s important to consider risk and return metrics. These metrics can help you understand the potential risks and rewards of investing in each security.

Sharpe Ratio

One important metric to consider is the Sharpe ratio. This ratio measures the excess return of an investment compared to the risk-free rate, relative to the investment’s volatility. A higher Sharpe ratio indicates that an investment has generated more return per unit of risk.

Looking at the Sharpe ratio for EFA and VXUS, we can see that both securities have similar ratios. EFA has a Sharpe ratio of 0.59, while VXUS has a Sharpe ratio of 0.58. This suggests that both securities have generated similar returns relative to their risk.

Volatility

Another important metric to consider is volatility. Volatility measures the degree of variation of an investment’s returns over time. A higher volatility indicates that an investment’s returns have fluctuated more widely.

When comparing EFA and VXUS, we can see that VXUS has a higher volatility compared to EFA. VXUS has a standard deviation of 14.09%, while EFA has a standard deviation of 13.06%. This suggests that VXUS may be riskier than EFA, as its returns have fluctuated more widely over time.

Overall, when considering risk and return metrics, both EFA and VXUS have similar Sharpe ratios, but VXUS may be riskier due to its higher volatility. As with any investment, it’s important to carefully consider your own risk tolerance and investment goals before making any decisions.

Practical Considerations for Investors

Investment Decisions

When it comes to choosing between EFA and VXUS, there are a few practical considerations that investors should keep in mind. One of the most important factors to consider is your investment goals. If you are looking for exposure to developed markets, EFA may be a better choice, as it tracks the MSCI EAFE Index, which includes stocks from Europe, Australasia, and the Far East. On the other hand, if you are looking for broader exposure to both developed and emerging markets, VXUS may be a better fit, as it tracks the FTSE Global All Cap ex US Index.

Another important consideration is the expense ratio. EFA has an expense ratio of 0.33%, while VXUS has an expense ratio of 0.07%. This means that VXUS is significantly cheaper to own than EFA. However, it is important to note that expense ratios are not the only factor to consider when choosing between two ETFs. You should also consider the liquidity of the ETF, the bid-ask spread, and the tracking error.

Tax Implications

Investors should also consider the tax implications of owning EFA vs VXUS. Both ETFs are subject to capital gains taxes when sold, but the tax rate may vary depending on how long you hold the ETF. If you hold the ETF for more than one year, you may be eligible for long-term capital gains tax rates, which are generally lower than short-term capital gains tax rates.

It is also important to note that EFA and VXUS are subject to different tax rules. EFA is subject to foreign tax withholding, which means that a portion of the dividends paid by the ETF may be withheld by the foreign government. This can reduce the overall return of the ETF. VXUS, on the other hand, is not subject to foreign tax withholding, which may make it a more tax-efficient choice for some investors.

In summary, when choosing between EFA and VXUS, investors should consider their investment goals, the expense ratio, the liquidity, the bid-ask spread, the tracking error, and the tax implications. It is important to do your own research and consult with a qualified financial advisor before making any investment decisions.

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