VEU vs. QUAL: What’s The Difference?

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) and the iShares MSCI USA Quality Factor ETF (QUAL) are both among the Top 100 ETFs. VEU is a Vanguard Foreign Large Blend fund and QUAL is a iShares Large Blend fund. So, what’s the difference between VEU and QUAL? And which fund is better?

The expense ratio of VEU is 0.07 percentage points lower than QUAL’s (0.08% vs. 0.15%). VEU also has a higher exposure to the financial services sector and a higher standard deviation. Overall, VEU has provided lower returns than QUAL over the past ten years.

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

Summary

VEU QUAL
Name Vanguard FTSE All-World ex-US Index Fund ETF Shares iShares MSCI USA Quality Factor ETF
Category Foreign Large Blend Large Blend
Issuer Vanguard iShares
AUM 53.64B 23.93B
Avg. Return 6.64% 13.42%
Div. Yield 2.31% 1.29%
Expense Ratio 0.08% 0.15%

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) is a Foreign Large Blend fund that is issued by Vanguard. It currently has 53.64B total assets under management and has yielded an average annual return of 6.64% over the past 10 years. The fund has a dividend yield of 2.31% with an expense ratio of 0.08%.

The iShares MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.

VEU’s dividend yield is 1.02% higher than that of QUAL (2.31% vs. 1.29%). Also, VEU yielded on average 6.78% less per year over the past decade (6.64% vs. 13.42%). The expense ratio of VEU is 0.07 percentage points lower than QUAL’s (0.08% vs. 0.15%).

Fund Composition

Industry Exposure

VEU vs. QUAL - Industry Exposure

VEU QUAL
Technology 12.94% 22.52%
Industrials 12.19% 9.22%
Energy 4.69% 2.24%
Communication Services 7.44% 11.44%
Utilities 2.89% 2.41%
Healthcare 9.34% 13.22%
Consumer Defensive 8.28% 8.57%
Real Estate 3.04% 2.72%
Financial Services 18.46% 15.87%
Consumer Cyclical 12.57% 9.43%
Basic Materials 8.17% 2.35%

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) has the most exposure to the Financial Services sector at 18.46%. This is followed by Technology and Consumer Cyclical at 12.94% and 12.57% respectively. Real Estate (3.04%), Energy (4.69%), and Communication Services (7.44%) only make up 15.17% of the fund’s total assets.

VEU’s mid-section with moderate exposure is comprised of Basic Materials, Consumer Defensive, Healthcare, Industrials, and Consumer Cyclical stocks at 8.17%, 8.28%, 9.34%, 12.19%, and 12.57%.

The iShares MSCI USA Quality Factor ETF (QUAL) has the most exposure to the Technology sector at 22.52%. This is followed by Financial Services and Healthcare at 15.87% and 13.22% respectively. Basic Materials (2.35%), Utilities (2.41%), and Real Estate (2.72%) only make up 7.48% of the fund’s total assets.

QUAL’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Consumer Cyclical, Communication Services, and Healthcare stocks at 8.57%, 9.22%, 9.43%, 11.44%, and 13.22%.

VEU is 2.59% more exposed to the Financial Services sector than QUAL (18.46% vs 15.87%). VEU’s exposure to Technology and Consumer Cyclical stocks is 9.58% lower and 3.14% higher respectively (12.94% vs. 22.52% and 12.57% vs. 9.43%). In total, Real Estate, Energy, and Communication Services also make up 1.23% less of the fund’s holdings compared to QUAL (15.17% vs. 16.40%).

Holdings

VEU - Holdings

VEU Holdings Weight
Tencent Holdings Ltd 1.57%
Alibaba Group Holding Ltd Ordinary Shares 1.4%
Nestle SA 1.22%
Taiwan Semiconductor Manufacturing Co Ltd 0.98%
ASML Holding NV 0.95%
Taiwan Semiconductor Manufacturing Co Ltd ADR 0.91%
Roche Holding AG 0.91%
Toyota Motor Corp 0.75%
LVMH Moet Hennessy Louis Vuitton SE 0.68%
Novartis AG 0.67%

VEU’s Top Holdings are Tencent Holdings Ltd, Alibaba Group Holding Ltd Ordinary Shares, Nestle SA, Taiwan Semiconductor Manufacturing Co Ltd, and ASML Holding NV at 1.57%, 1.4%, 1.22%, 0.98%, and 0.95%.

Taiwan Semiconductor Manufacturing Co Ltd ADR (0.91%), Roche Holding AG (0.91%), and Toyota Motor Corp (0.75%) have a slightly smaller but still significant weight. LVMH Moet Hennessy Louis Vuitton SE and Novartis AG are also represented in the VEU’s holdings at 0.68% and 0.67%.

QUAL - Holdings

QUAL Holdings Weight
Facebook Inc Class A 4.77%
Nike Inc Class B 4.05%
Microsoft Corp 3.54%
Apple Inc 3.52%
Johnson & Johnson 2.99%
BlackRock Inc 2.87%
Target Corp 2.8%
Mastercard Inc Class A 2.72%
NVIDIA Corp 2.71%
Alphabet Inc Class A 2.49%

QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.

BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.

Risk Analysis

VEU QUAL
Mean Return 0.56 0
R-squared 98.44 0
Std. Deviation 15.08 0
Alpha 0.28 0
Beta 0.99 0
Sharpe Ratio 0.4 0
Treynor Ratio 5.12 0

The Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) has a Alpha of 0.28 with a Standard Deviation of 15.08 and a R-squared of 98.44. Its Beta is 0.99 while VEU’s Sharpe Ratio is 0.4. Furthermore, the fund has a Treynor Ratio of 5.12 and a Mean Return of 0.56.

The iShares MSCI USA Quality Factor ETF (QUAL) has a Treynor Ratio of 0 with a Alpha of 0 and a Sharpe Ratio of 0. Its R-squared is 0 while QUAL’s Beta is 0. Furthermore, the fund has a Standard Deviation of 0 and a Mean Return of 0.

VEU’s Mean Return is 0.56 points higher than that of QUAL and its R-squared is 98.44 points higher. With a Standard Deviation of 15.08, VEU is slightly more volatile than QUAL. The Alpha and Beta of VEU are 0.28 points higher and 0.99 points higher than QUAL’s Alpha and Beta.

Performance

Annual Returns

VEU vs. QUAL - Annual Returns

Year VEU QUAL
2020 11.39% 16.96%
2019 21.63% 34.14%
2018 -13.97% -5.77%
2017 27.27% 22.26%
2016 4.77% 9.18%
2015 -4.67% 5.56%
2014 -4.05% 11.62%
2013 14.5% 0.0%
2012 18.55% 0.0%
2011 -14.25% 0.0%
2010 11.85% 0.0%

VEU had its best year in 2017 with an annual return of 27.27%. VEU’s worst year over the past decade yielded -14.25% and occurred in 2011. In most years the Vanguard FTSE All-World ex-US Index Fund ETF Shares provided moderate returns such as in 2016, 2020, and 2010 where annual returns amounted to 4.77%, 11.39%, and 11.85% respectively.

The year 2019 was the strongest year for QUAL, returning 34.14% on an annual basis. The poorest year for QUAL in the last ten years was 2018, with a yield of -5.77%. Most years the iShares MSCI USA Quality Factor ETF has given investors modest returns, such as in 2010, 2015, and 2016, when gains were 0.0%, 5.56%, and 9.18% respectively.

Portfolio Growth

VEU vs. QUAL - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VEU $10,000 $14,215 6.64%
QUAL $10,000 $23,251 13.42%

A $10,000 investment in VEU would have resulted in a final balance of $14,215. This is a profit of $4,215 over 7 years and amounts to a compound annual growth rate (CAGR) of 6.64%.

With a $10,000 investment in QUAL, the end total would have been $23,251. This equates to a $13,251 profit over 7 years and a compound annual growth rate (CAGR) of 13.42%.

VEU’s CAGR is 6.78 percentage points lower than that of QUAL and as a result, would have yielded $9,036 less on a $10,000 investment. Thus, VEU performed worse than QUAL by 6.78% annually.


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