EFV vs. VMBS: What’s The Difference?

The iShares MSCI EAFE Value ETF (EFV) and the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) are both among the Top 100 ETFs. EFV is a iShares Foreign Large Value fund and VMBS is a Vanguard Intermediate Government fund. So, what’s the difference between EFV and VMBS? And which fund is better?

The expense ratio of EFV is 0.34 percentage points higher than VMBS’s (0.39% vs. 0.05%). EFV also has a high exposure to the financial services sector while VMBS is mostly comprised of AAA bonds. Overall, EFV has provided higher returns than VMBS over the past 10 years.

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

Summary

EFV VMBS
Name iShares MSCI EAFE Value ETF Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Foreign Large Value Intermediate Government
Issuer iShares Vanguard
AUM 14.37B 16.61B
Avg. Return 3.99% 2.89%
Div. Yield 2.94% 1.23%
Expense Ratio 0.39% 0.05%

The iShares MSCI EAFE Value ETF (EFV) is a Foreign Large Value fund that is issued by iShares. It currently has 14.37B total assets under management and has yielded an average annual return of 3.99% over the past 10 years. The fund has a dividend yield of 2.94% with an expense ratio of 0.39%.

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%.

EFV’s dividend yield is 1.71% higher than that of VMBS (2.94% vs. 1.23%). Also, EFV yielded on average 1.10% more per year over the past decade (3.99% vs. 2.89%). The expense ratio of EFV is 0.34 percentage points higher than VMBS’s (0.39% vs. 0.05%).

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Fund Composition

Holdings

EFV - Holdings

EFV Holdings Weight
Novartis AG 2.41%
Toyota Motor Corp 2.21%
Commonwealth Bank of Australia 1.59%
Siemens AG 1.45%
Sanofi SA 1.42%
HSBC Holdings PLC 1.4%
TotalEnergies SE 1.35%
Allianz SE 1.23%
GlaxoSmithKline PLC 1.18%
Rio Tinto PLC 1.1%

EFV’s Top Holdings are Novartis AG, Toyota Motor Corp, Commonwealth Bank of Australia, Siemens AG, and Sanofi SA at 2.41%, 2.21%, 1.59%, 1.45%, and 1.42%.

HSBC Holdings PLC (1.4%), TotalEnergies SE (1.35%), and Allianz SE (1.23%) have a slightly smaller but still significant weight. GlaxoSmithKline PLC and Rio Tinto PLC are also represented in the EFV’s holdings at 1.18% and 1.1%.

VMBS - Holdings

VMBS Bond Sectors Weight
AAA 100.01%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%
Others -0.01%

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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Risk Analysis

EFV VMBS
Mean Return 0.42 0.21
R-squared 92.15 65.78
Std. Deviation 16.53 2.02
Alpha -1.77 0.37
Beta 1.05 0.54
Sharpe Ratio 0.26 0.94
Treynor Ratio 2.92 3.47

The iShares MSCI EAFE Value ETF (EFV) has a Beta of 1.05 with a R-squared of 92.15 and a Alpha of -1.77. Its Mean Return is 0.42 while EFV’s Sharpe Ratio is 0.26. Furthermore, the fund has a Treynor Ratio of 2.92 and a Standard Deviation of 16.53.

The Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS) has a R-squared of 65.78 with a Standard Deviation of 2.02 and a Alpha of 0.37. Its Treynor Ratio is 3.47 while VMBS’s Beta is 0.54. Furthermore, the fund has a Sharpe Ratio of 0.94 and a Mean Return of 0.21.

EFV’s Mean Return is 0.21 points higher than that of VMBS and its R-squared is 26.37 points higher. With a Standard Deviation of 16.53, EFV is slightly more volatile than VMBS. The Alpha and Beta of EFV are 2.14 points lower and 0.51 points higher than VMBS’s Alpha and Beta.

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Performance

Annual Returns

EFV vs. VMBS - Annual Returns

Year EFV VMBS
2020 -2.78% 3.77%
2019 15.97% 6.17%
2018 -14.88% 0.87%
2017 21.22% 2.37%
2016 4.87% 1.43%
2015 -5.89% 1.43%
2014 -5.65% 5.81%
2013 22.61% -1.28%
2012 17.52% 2.47%
2011 -12.24% 5.89%
2010 3.18% 5.24%

EFV had its best year in 2013 with an annual return of 22.61%. EFV’s worst year over the past decade yielded -14.88% and occurred in 2018. In most years the iShares MSCI EAFE Value ETF provided moderate returns such as in 2020, 2010, and 2016 where annual returns amounted to -2.78%, 3.18%, and 4.87% 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.

Portfolio Growth

EFV vs. VMBS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EFV $10,000 $13,698 3.99%
VMBS $10,000 $13,265 2.89%

A $10,000 investment in EFV would have resulted in a final balance of $13,698. This is a profit of $3,698 over 10 years and amounts to a compound annual growth rate (CAGR) of 3.99%.

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%.

EFV’s CAGR is 1.10 percentage points higher than that of VMBS and as a result, would have yielded $433 more on a $10,000 investment. Thus, EFV outperformed VMBS by 1.10% annually.


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