The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) and the iShares MSCI EAFE ETF (EFA) are both among the Top 100 ETFs. VWO is a Vanguard Diversified Emerging Mkts fund and EFA is a iShares Foreign Large Blend fund. So, what’s the difference between VWO and EFA? And which fund is better?
The expense ratio of VWO is 0.22 percentage points lower than EFA’s (0.1% vs. 0.32%). VWO also has a higher exposure to the financial services sector and a higher standard deviation. Overall, VWO has provided lower returns than EFA over the past ten years.
In this article, we’ll compare VWO vs. EFA. We’ll look at portfolio growth and annual returns, as well as at their industry exposure and performance. Moreover, I’ll also discuss VWO’s and EFA’s fund composition, risk metrics, and holdings and examine how these affect their overall returns.
Summary
| VWO | EFA | |
| Name | Vanguard FTSE Emerging Markets Index Fund ETF Shares | iShares MSCI EAFE ETF |
| Category | Diversified Emerging Mkts | Foreign Large Blend |
| Issuer | Vanguard | iShares |
| AUM | 117.28B | 56.77B |
| Avg. Return | 5.79% | 6.47% |
| Div. Yield | 1.98% | 2.28% |
| Expense Ratio | 0.1% | 0.32% |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) is a Diversified Emerging Mkts fund that is issued by Vanguard. It currently has 117.28B 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 1.98% with an expense ratio of 0.1%.
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%.
VWO’s dividend yield is 0.30% lower than that of EFA (1.98% vs. 2.28%). Also, VWO yielded on average 0.68% less per year over the past decade (5.79% vs. 6.47%). The expense ratio of VWO is 0.22 percentage points lower than EFA’s (0.1% vs. 0.32%).
Fund Composition
Industry Exposure
| VWO | EFA | |
| Technology | 17.06% | 9.68% |
| Industrials | 5.95% | 15.01% |
| Energy | 5.48% | 3.51% |
| Communication Services | 11.41% | 5.68% |
| Utilities | 2.55% | 3.35% |
| Healthcare | 5.33% | 12.8% |
| Consumer Defensive | 5.87% | 10.56% |
| Real Estate | 3.13% | 3.01% |
| Financial Services | 18.15% | 16.88% |
| Consumer Cyclical | 16.1% | 11.62% |
| Basic Materials | 8.98% | 7.91% |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has the most exposure to the Financial Services sector at 18.15%. This is followed by Technology and Consumer Cyclical at 17.06% and 16.1% respectively. Real Estate (3.13%), Healthcare (5.33%), and Energy (5.48%) only make up 13.94% of the fund’s total assets.
VWO’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Basic Materials, Communication Services, and Consumer Cyclical stocks at 5.87%, 5.95%, 8.98%, 11.41%, and 16.1%.
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%.
VWO is 1.27% more exposed to the Financial Services sector than EFA (18.15% vs 16.88%). VWO’s exposure to Technology and Consumer Cyclical stocks is 7.38% higher and 4.48% higher respectively (17.06% vs. 9.68% and 16.1% vs. 11.62%). In total, Real Estate, Healthcare, and Energy also make up 5.38% less of the fund’s holdings compared to EFA (13.94% vs. 19.32%).
Holdings
| VWO Holdings | Weight |
| Tencent Holdings Ltd | 5.29% |
| Alibaba Group Holding Ltd Ordinary Shares | 4.73% |
| Taiwan Semiconductor Manufacturing Co Ltd | 4.58% |
| Meituan | 1.88% |
| Taiwan Semiconductor Manufacturing Co Ltd ADR | 1.7% |
| Reliance Industries Ltd Shs Dematerialised | 1.06% |
| Naspers Ltd Class N | 1.01% |
| Vale SA | 0.92% |
| Infosys Ltd | 0.91% |
| China Construction Bank Corp Class H | 0.84% |
VWO’s Top Holdings are Tencent Holdings Ltd, Alibaba Group Holding Ltd Ordinary Shares, Taiwan Semiconductor Manufacturing Co Ltd, Meituan, and Taiwan Semiconductor Manufacturing Co Ltd ADR at 5.29%, 4.73%, 4.58%, 1.88%, and 1.7%.
Reliance Industries Ltd Shs Dematerialised (1.06%), Naspers Ltd Class N (1.01%), and Vale SA (0.92%) have a slightly smaller but still significant weight. Infosys Ltd and China Construction Bank Corp Class H are also represented in the VWO’s holdings at 0.91% and 0.84%.
| EFA Holdings | Weight |
| Nestle SA | 2.11% |
| ASML Holding NV | 1.69% |
| Roche Holding AG | 1.55% |
| LVMH Moet Hennessy Louis Vuitton SE | 1.28% |
| Novartis AG | 1.19% |
| Toyota Motor Corp | 1.09% |
| AstraZeneca PLC | 0.92% |
| Unilever PLC | 0.9% |
| AIA Group Ltd | 0.88% |
| SAP SE | 0.86% |
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%.
Risk Analysis
| VWO | EFA | |
| Mean Return | 0.45 | 0.57 |
| R-squared | 81.69 | 96.78 |
| Std. Deviation | 17.64 | 15.01 |
| Alpha | -1.36 | 0.47 |
| Beta | 1.06 | 0.98 |
| Sharpe Ratio | 0.27 | 0.41 |
| Treynor Ratio | 3.14 | 5.33 |
The Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) has a Sharpe Ratio of 0.27 with a Standard Deviation of 17.64 and a Treynor Ratio of 3.14. Its Mean Return is 0.45 while VWO’s Beta is 1.06. Furthermore, the fund has a R-squared of 81.69 and a Alpha of -1.36.
The iShares MSCI EAFE ETF (EFA) has a Beta of 0.98 with a Treynor Ratio of 5.33 and a Alpha of 0.47. Its R-squared is 96.78 while EFA’s Mean Return is 0.57. Furthermore, the fund has a Standard Deviation of 15.01 and a Sharpe Ratio of 0.41.
VWO’s Mean Return is 0.12 points lower than that of EFA and its R-squared is 15.09 points lower. With a Standard Deviation of 17.64, VWO is slightly more volatile than EFA. The Alpha and Beta of VWO are 1.83 points lower and 0.08 points higher than EFA’s Alpha and Beta.
Performance
Annual Returns
| Year | VWO | EFA |
| 2020 | 15.32% | 7.92% |
| 2019 | 20.4% | 21.94% |
| 2018 | -14.57% | -13.83% |
| 2017 | 31.38% | 24.94% |
| 2016 | 11.75% | 0.96% |
| 2015 | -15.35% | -0.9% |
| 2014 | 0.6% | -5.04% |
| 2013 | -5.0% | 22.62% |
| 2012 | 18.84% | 17.22% |
| 2011 | -18.68% | -12.18% |
| 2010 | 18.99% | 7.52% |
VWO had its best year in 2017 with an annual return of 31.38%. VWO’s worst year over the past decade yielded -18.68% and occurred in 2011. In most years the Vanguard FTSE Emerging Markets Index Fund ETF Shares provided moderate returns such as in 2014, 2016, and 2020 where annual returns amounted to 0.6%, 11.75%, and 15.32% 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.
Portfolio Growth
| Fund | Initial Balance | Final Balance | CAGR |
| VWO | $10,000 | $16,200 | 5.79% |
| EFA | $10,000 | $18,269 | 6.47% |
A $10,000 investment in VWO would have resulted in a final balance of $16,200. This is a profit of $6,200 over 11 years and amounts to a compound annual growth rate (CAGR) of 5.79%.
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%.
VWO’s CAGR is 0.68 percentage points lower than that of EFA and as a result, would have yielded $2,069 less on a $10,000 investment. Thus, VWO performed worse than EFA by 0.68% annually.
Current recommendations:
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.
I believe that money is just a means to an end: to be free to spend your time as you wish, to maximize your positive impact on the world.
