IEFA vs. IEMG: What’s The Difference?

The iShares Core MSCI EAFE ETF (IEFA) and the iShares Core MSCI Emerging Markets ETF (IEMG) are both among the Top 100 ETFs. IEFA is a iShares Foreign Large Blend fund and IEMG is a iShares Diversified Emerging Mkts fund. So, what’s the difference between IEFA and IEMG? And which fund is better?

The expense ratio of IEFA is 0.04 percentage points lower than IEMG’s (0.07% vs. 0.11%). IEFA also has a higher exposure to the industrials sector and a lower standard deviation. Overall, IEFA has provided lower returns than IEMG over the past ten years.

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

Summary

IEFA IEMG
Name iShares Core MSCI EAFE ETF iShares Core MSCI Emerging Markets ETF
Category Foreign Large Blend Diversified Emerging Mkts
Issuer iShares iShares
AUM 95.78B 83.68B
Avg. Return 5.79% 7.41%
Div. Yield 2.28% 1.78%
Expense Ratio 0.07% 0.11%

The iShares Core MSCI EAFE ETF (IEFA) is a Foreign Large Blend fund that is issued by iShares. It currently has 95.78B total assets under management and has yielded an average annual return of 5.79% over the past 10 years. The fund has a dividend yield of 2.28% with an expense ratio of 0.07%.

The iShares Core MSCI Emerging Markets ETF (IEMG) is a Diversified Emerging Mkts fund that is issued by iShares. It currently has 83.68B total assets under management and has yielded an average annual return of 7.41% over the past 10 years. The fund has a dividend yield of 1.78% with an expense ratio of 0.11%.

IEFA’s dividend yield is 0.50% higher than that of IEMG (2.28% vs. 1.78%). Also, IEFA yielded on average 1.62% less per year over the past decade (5.79% vs. 7.41%). The expense ratio of IEFA is 0.04 percentage points lower than IEMG’s (0.07% vs. 0.11%).

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Fund Composition

Industry Exposure

IEFA vs. IEMG - Industry Exposure

IEFA IEMG
Technology 9.81% 20.44%
Industrials 16.32% 5.92%
Energy 3.19% 4.71%
Communication Services 5.53% 11.41%
Utilities 3.25% 2.13%
Healthcare 12.01% 5.73%
Consumer Defensive 9.78% 5.68%
Real Estate 4.31% 2.75%
Financial Services 15.91% 16.9%
Consumer Cyclical 11.96% 15.67%
Basic Materials 7.93% 8.64%

The iShares Core MSCI EAFE ETF (IEFA) has the most exposure to the Industrials sector at 16.32%. This is followed by Financial Services and Healthcare at 15.91% and 12.01% respectively. Utilities (3.25%), Real Estate (4.31%), and Communication Services (5.53%) only make up 13.09% of the fund’s total assets.

IEFA’s mid-section with moderate exposure is comprised of Basic Materials, Consumer Defensive, Technology, Consumer Cyclical, and Healthcare stocks at 7.93%, 9.78%, 9.81%, 11.96%, and 12.01%.

The iShares Core MSCI Emerging Markets ETF (IEMG) has the most exposure to the Technology sector at 20.44%. This is followed by Financial Services and Consumer Cyclical at 16.9% and 15.67% respectively. Real Estate (2.75%), Energy (4.71%), and Consumer Defensive (5.68%) only make up 13.14% of the fund’s total assets.

IEMG’s mid-section with moderate exposure is comprised of Healthcare, Industrials, Basic Materials, Communication Services, and Consumer Cyclical stocks at 5.73%, 5.92%, 8.64%, 11.41%, and 15.67%.

IEFA is 10.40% more exposed to the Industrials sector than IEMG (16.32% vs 5.92%). IEFA’s exposure to Financial Services and Healthcare stocks is 0.99% lower and 6.28% higher respectively (15.91% vs. 16.9% and 12.01% vs. 5.73%). In total, Utilities, Real Estate, and Communication Services also make up 3.20% less of the fund’s holdings compared to IEMG (13.09% vs. 16.29%).

Holdings

IEFA - Holdings

IEFA Holdings Weight
Nestle SA 1.77%
ASML Holding NV 1.43%
Roche Holding AG 1.31%
LVMH Moet Hennessy Louis Vuitton SE 1.08%
Novartis AG 1.0%
Toyota Motor Corp 0.92%
AstraZeneca PLC 0.78%
Unilever PLC 0.76%
AIA Group Ltd 0.74%
SAP SE 0.73%

IEFA’s Top Holdings are Nestle SA, ASML Holding NV, Roche Holding AG, LVMH Moet Hennessy Louis Vuitton SE, and Novartis AG at 1.77%, 1.43%, 1.31%, 1.08%, and 1.0%.

Toyota Motor Corp (0.92%), AstraZeneca PLC (0.78%), and Unilever PLC (0.76%) have a slightly smaller but still significant weight. AIA Group Ltd and SAP SE are also represented in the IEFA’s holdings at 0.74% and 0.73%.

IEMG - Holdings

IEMG Holdings Weight
Taiwan Semiconductor Manufacturing Co Ltd 5.37%
Tencent Holdings Ltd 4.42%
Alibaba Group Holding Ltd Ordinary Shares 4.38%
Samsung Electronics Co Ltd 3.49%
Meituan 1.52%
Naspers Ltd Class N 0.93%
Vale SA 0.91%
Reliance Industries Ltd Shs Dematerialised 0.83%
China Construction Bank Corp Class H 0.77%
Infosys Ltd 0.74%

IEMG’s Top Holdings are Taiwan Semiconductor Manufacturing Co Ltd, Tencent Holdings Ltd, Alibaba Group Holding Ltd Ordinary Shares, Samsung Electronics Co Ltd, and Meituan at 5.37%, 4.42%, 4.38%, 3.49%, and 1.52%.

Naspers Ltd Class N (0.93%), Vale SA (0.91%), and Reliance Industries Ltd Shs Dematerialised (0.83%) have a slightly smaller but still significant weight. China Construction Bank Corp Class H and Infosys Ltd are also represented in the IEMG’s holdings at 0.77% and 0.74%.

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Performance

Annual Returns

IEFA vs. IEMG - Annual Returns

Year IEFA IEMG
2020 8.55% 18.18%
2019 22.67% 17.5%
2018 -14.2% -14.69%
2017 26.42% 36.78%
2016 1.36% 9.98%
2015 0.53% -13.86%
2014 -4.82% -2.04%
2013 23.73% -2.16%
2012 0.0% 0.0%
2011 0.0% 0.0%
2010 0.0% 0.0%

IEFA had its best year in 2017 with an annual return of 26.42%. IEFA’s worst year over the past decade yielded -14.2% and occurred in 2018. In most years the iShares Core MSCI EAFE ETF provided moderate returns such as in 2010, 2015, and 2016 where annual returns amounted to 0.0%, 0.53%, and 1.36% respectively.

The year 2017 was the strongest year for IEMG, returning 36.78% on an annual basis. The poorest year for IEMG in the last ten years was 2018, with a yield of -14.69%. Most years the iShares Core MSCI Emerging Markets ETF has given investors modest returns, such as in 2012, 2011, and 2010, when gains were 0.0%, 0.0%, and 0.0% respectively.

Portfolio Growth

IEFA vs. IEMG - Portfolio Growth

Fund Initial Balance Final Balance CAGR
IEFA $10,000 $14,008 5.79%
IEMG $10,000 $15,037 7.41%

A $10,000 investment in IEFA would have resulted in a final balance of $14,008. This is a profit of $4,008 over 7 years and amounts to a compound annual growth rate (CAGR) of 5.79%.

With a $10,000 investment in IEMG, the end total would have been $15,037. This equates to a $5,037 profit over 7 years and a compound annual growth rate (CAGR) of 7.41%.

IEFA’s CAGR is 1.62 percentage points lower than that of IEMG and as a result, would have yielded $1,029 less on a $10,000 investment. Thus, IEFA performed worse than IEMG by 1.62% annually.


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