IEFA vs. VMBS: What’s The Difference?

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

The expense ratio of IEFA is 0.02 percentage points higher than VMBS’s (0.07% vs. 0.05%). IEFA also has a high exposure to the industrials sector while VMBS is mostly comprised of AAA bonds. Overall, IEFA has provided higher returns than VMBS over the past ten years.

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

Summary

IEFA VMBS
Name iShares Core MSCI EAFE ETF Vanguard Mortgage-Backed Securities Index Fund ETF Shares
Category Foreign Large Blend Intermediate Government
Issuer iShares Vanguard
AUM 95.78B 16.61B
Avg. Return 5.79% 2.89%
Div. Yield 2.28% 1.23%
Expense Ratio 0.07% 0.05%

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 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%.

IEFA’s dividend yield is 1.05% higher than that of VMBS (2.28% vs. 1.23%). Also, IEFA yielded on average 2.89% more per year over the past decade (5.79% vs. 2.89%). The expense ratio of IEFA is 0.02 percentage points higher than VMBS’s (0.07% vs. 0.05%).

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Fund Composition

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%.

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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Performance

Annual Returns

IEFA vs. VMBS - Annual Returns

Year IEFA VMBS
2020 8.55% 3.77%
2019 22.67% 6.17%
2018 -14.2% 0.87%
2017 26.42% 2.37%
2016 1.36% 1.43%
2015 0.53% 1.43%
2014 -4.82% 5.81%
2013 23.73% -1.28%
2012 0.0% 2.47%
2011 0.0% 5.89%
2010 0.0% 5.24%

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 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

IEFA vs. VMBS - Portfolio Growth

Fund Initial Balance Final Balance CAGR
IEFA $10,000 $14,008 5.79%
VMBS $10,000 $12,384 2.89%

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 VMBS, the end total would have been $12,384. This equates to a $2,384 profit over 7 years and a compound annual growth rate (CAGR) of 2.89%.

IEFA’s CAGR is 2.89 percentage points higher than that of VMBS and as a result, would have yielded $1,624 more on a $10,000 investment. Thus, IEFA outperformed VMBS by 2.89% annually.


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