Investment option comparison: While IEFA is widely appreciated by many, my personal preference leans towards VEA ETF.
In the realm of international stock investments, two Exchange-Traded Funds (ETFs) stand out for their popularity and performance: the Vanguard FTSE Developed Markets ETF (VEA) and the iShares Core MSCI EAFE ETF (IEFA). While both funds offer international exposure to developed markets outside the U.S. and Canada, VEA holds several advantages that make it an attractive choice for investors seeking a diversified portfolio.
Firstly, VEA's broader geographic coverage sets it apart. By tracking the FTSE Developed All Cap ex US Index, VEA includes developed market stocks from Canada and South Korea, which IEFA does not offer. This expanded international exposure provides a slightly wider focus beyond IEFA's Europe, Australia, and Far East focus.
Secondly, VEA offers greater diversification. With around 3,839 companies in its portfolio, compared to IEFA's 2,605, VEA provides broader diversification across small-, mid-, and large-cap stocks in developed markets outside the U.S. This can help reduce individual stock or country risk in a portfolio.
Thirdly, VEA's lower expense ratio is a significant advantage. At 0.03%, VEA's fee is significantly lower than IEFA's 0.07%. This means investors pay less annually, enhancing net returns over time.
Fourthly, VEA's assets under management (AUM) are approximately $158.2 billion, slightly higher than IEFA's $139.5 billion. A higher AUM often reflects greater liquidity and can reduce bid-ask spreads for investors.
Despite slightly lower returns, VEA's lower fees may improve compounded returns over the long term. Over the past five years, VEA has a return of approximately 10.42%, compared to IEFA's 10.24%. However, VEA has outperformed IEFA in terms of returns this year, with a year-to-date return of nearly 16%, compared to IEFA's 15.2%.
IEFA, on the other hand, is a widely held and excellent fund that tracks the MSCI EAFE Investable Market Index, which includes large-, mid-, and small-cap stocks from developed markets. Its top holdings include ASML, Nestle, Novo Nordisk, and AstraZeneca.
While VEA offers several advantages, it might not be suitable for portfolios that already include significant Canadian holdings or are overweight in energy and natural resources. As with any investment decision, it is essential to consider the specific needs and goals of your portfolio.
In conclusion, VEA offers broader country coverage, greater diversification with more companies including small caps, and a lower expense ratio than IEFA, making it an excellent choice for international developed market exposure within a diversified portfolio.
**Summary Table:**
| Feature | Vanguard VEA | iShares IEFA | |---------------------------|------------------------------------|--------------------------------------| | Index Tracked | FTSE Developed All Cap ex US | MSCI EAFE | | Geographic Exposure | Europe, Pacific, Canada, South Korea| Europe, Australia, Asia, Far East | | Number of Holdings | ~3,839 | ~2,605 | | Expense Ratio | 0.03% | 0.07% | | 5-Year Return (approx.) | 10.42% | 10.24% | | AUM | $158.2 billion | $139.5 billion | | Market Cap Coverage | Small, Mid, Large Caps | Mostly Mid and Large Caps |
- For investors seeking to incorporate technology into their international finance, VEA offers a diverse portfolio with around 3,839 companies, providing exposure to developed market stocks beyond traditional European, Australian, and Far Eastern focus.
- Beyond its diverse geographic coverage, VEA also presents an attractive choice for investors aiming to minimize costs in their investing, boasting a lower expense ratio of 0.03% compared to IEFA's 0.07%.
- As technology continues to dominate the market, an investment in VEA allows investors to capitalize on a wider range of assets, thanks to its extensive portfolio, which includes companies from countries like Canada and South Korea, that may not be represented in traditional ETFs focused on developed markets.
