The iShares Core MSCI EAFE ETF (NYSEMKT:IEFA) and iShares MSCI ACWI ex U.S. ETF (NASDAQ:ACWX) are both popular options for investors looking for exposure to non-U.S. equities. However, they have distinct differences in their approaches, costs, performance, sector tilts, and portfolio construction.
IEFA focuses solely on developed markets, while ACWX includes emerging markets in its portfolio. This distinction is important for investors as it can impact the risk and return profile of each ETF.
In terms of cost, IEFA has a lower expense ratio of 0.07% compared to ACWX’s 0.32%. Additionally, IEFA offers a higher dividend yield of 3.4%, compared to ACWX’s 2.7%. With over 800 more companies in its holdings, IEFA boasts a total asset value of $170.35 billion, significantly higher than ACWX’s $8.6 billion.
When looking at performance, ACWX has a slightly higher 1-year return of 31.86% compared to IEFA’s 28.66%. However, IEFA has a lower beta of 0.79 compared to ACWX’s 0.74, indicating lower price volatility relative to the S&P 500.
ACWX, launched nearly 18 years ago, tracks non-U.S. large- and mid-cap stocks across developed and emerging markets. Its largest holdings include Taiwan Semiconductor Manufacturing, Tencent Holdings Ltd, and ASML Holding N.V. On the other hand, IEFA, created in 2012, focuses on developed markets with a larger portfolio of 2,619 stocks and a lighter allocation to tech companies. Its top holdings include ASML, Roche Holding AG, and HSBC Holdings PLC.
Investors should be aware that both funds exclude American stocks, which can result in different price movements compared to U.S. stocks. ACWX’s top holdings are primarily based in Asia, while IEFA’s are in Europe. This geographic concentration can impact the performance of each ETF.
Both ETFs pay dividends semi-annually, which may be a different payout frequency for some investors. Overall, IEFA edges out ACWX in terms of expense ratio, dividends, and return over the last five years. However, for investors seeking exposure to both emerging and developed markets, ACWX remains a viable option.
In conclusion, the iShares Core MSCI EAFE ETF and iShares MSCI ACWI ex U.S. ETF offer investors unique opportunities for international diversification. Understanding the differences in their approaches and portfolio compositions can help investors make informed decisions when adding these ETFs to their portfolios.
