The iShares Russell 2000 ETF (IWM) and the iShares MSCI EAFE ETF (EFA) are both among the Top 100 ETFs. IWM is a iShares Small Blend fund and EFA is a iShares Foreign Large Blend fund. So, what’s the difference between IWM and EFA? And which fund is better?
The expense ratio of IWM is 0.13 percentage points lower than EFA’s (0.19% vs. 0.32%). IWM also has a higher exposure to the healthcare sector and a higher standard deviation. Overall, IWM has provided higher returns than EFA over the past ten years.
In this article, we’ll compare IWM vs. EFA. We’ll look at holdings and performance, as well as at their portfolio growth and fund composition. Moreover, I’ll also discuss IWM’s and EFA’s annual returns, industry exposure, and risk metrics and examine how these affect their overall returns.
|Name||iShares Russell 2000 ETF||iShares MSCI EAFE ETF|
|Category||Small Blend||Foreign Large Blend|
The iShares Russell 2000 ETF (IWM) is a Small Blend fund that is issued by iShares. It currently has 66.48B total assets under management and has yielded an average annual return of 13.52% over the past 10 years. The fund has a dividend yield of 0.86% with an expense ratio of 0.19%.
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%.
IWM’s dividend yield is 1.42% lower than that of EFA (0.86% vs. 2.28%). Also, IWM yielded on average 7.05% more per year over the past decade (13.52% vs. 6.47%). The expense ratio of IWM is 0.13 percentage points lower than EFA’s (0.19% vs. 0.32%).
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The iShares Russell 2000 ETF (IWM) has the most exposure to the Healthcare sector at 20.3%. This is followed by Industrials and Technology at 14.78% and 14.21% respectively. Consumer Defensive (3.65%), Basic Materials (3.74%), and Energy (3.74%) only make up 11.13% of the fund’s total assets.
IWM’s mid-section with moderate exposure is comprised of Communication Services, Real Estate, Consumer Cyclical, Financial Services, and Technology stocks at 3.79%, 8.59%, 10.99%, 13.76%, and 14.21%.
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%.
IWM is 7.50% more exposed to the Healthcare sector than EFA (20.3% vs 12.8%). IWM’s exposure to Industrials and Technology stocks is 0.23% lower and 4.53% higher respectively (14.78% vs. 15.01% and 14.21% vs. 9.68%). In total, Consumer Defensive, Basic Materials, and Energy also make up 10.85% less of the fund’s holdings compared to EFA (11.13% vs. 21.98%).
|AMC Entertainment Holdings Inc Class A||0.52%|
|Intellia Therapeutics Inc||0.33%|
|BlackRock Cash Funds Treasury SL Agency||0.29%|
|Tenet Healthcare Corp||0.26%|
|Lattice Semiconductor Corp||0.26%|
|Tetra Tech Inc||0.25%|
|EastGroup Properties Inc||0.24%|
|Arrowhead Pharmaceuticals Inc||0.24%|
IWM’s Top Holdings are AMC Entertainment Holdings Inc Class A, Intellia Therapeutics Inc, Crocs Inc, BlackRock Cash Funds Treasury SL Agency, and Tenet Healthcare Corp at 0.52%, 0.33%, 0.3%, 0.29%, and 0.26%.
Lattice Semiconductor Corp (0.26%), Tetra Tech Inc (0.25%), and II-VI Inc (0.25%) have a slightly smaller but still significant weight. EastGroup Properties Inc and Arrowhead Pharmaceuticals Inc are also represented in the IWM’s holdings at 0.24% and 0.24%.
|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%.
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The iShares Russell 2000 ETF (IWM) has a R-squared of 77.73 with a Alpha of -5.12 and a Mean Return of 1.12. Its Beta is 1.23 while IWM’s Standard Deviation is 18.87. Furthermore, the fund has a Sharpe Ratio of 0.68 and a Treynor Ratio of 9.56.
The iShares MSCI EAFE ETF (EFA) has a Sharpe Ratio of 0.41 with a Beta of 0.98 and a Alpha of 0.47. Its R-squared is 96.78 while EFA’s Standard Deviation is 15.01. Furthermore, the fund has a Treynor Ratio of 5.33 and a Mean Return of 0.57.
IWM’s Mean Return is 0.55 points higher than that of EFA and its R-squared is 19.05 points lower. With a Standard Deviation of 18.87, IWM is slightly more volatile than EFA. The Alpha and Beta of IWM are 5.59 points lower and 0.25 points higher than EFA’s Alpha and Beta.
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IWM had its best year in 2013 with an annual return of 38.85%. IWM’s worst year over the past decade yielded -11.02% and occurred in 2018. In most years the iShares Russell 2000 ETF provided moderate returns such as in 2017, 2012, and 2020 where annual returns amounted to 14.66%, 16.39%, and 19.89% respectively.
The year 2017 was the strongest year for EFA, returning 24.94% on an annual basis. The poorest year for EFA in the last ten years was 2018, with a yield of -13.83%. Most years the iShares MSCI EAFE ETF has given investors modest returns, such as in 2016, 2010, and 2020, when gains were 0.96%, 7.52%, and 7.92% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in IWM would have resulted in a final balance of $36,686. This is a profit of $26,686 over 11 years and amounts to a compound annual growth rate (CAGR) of 13.52%.
With a $10,000 investment in EFA, the end total would have been $18,269. This equates to a $8,269 profit over 11 years and a compound annual growth rate (CAGR) of 6.47%.
IWM’s CAGR is 7.05 percentage points higher than that of EFA and as a result, would have yielded $18,417 more on a $10,000 investment. Thus, IWM outperformed EFA by 7.05% annually.
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