Investors seeking international diversification often compare the iShares Core MSCI EAFE ETF (IEFA) and the iShares Core MSCI Total International Stock ETF (IXUS). While both funds charge an identical 0.07% expense ratio, their geographic focus differs significantly: IEFA targets developed markets only, while IXUS includes a roughly 16% allocation to emerging markets. This distinction has given IXUS a slight edge in long-term performance.
Geographic and Sector Breakdown
IEFA concentrates on developed markets in Europe, Australasia, and the Far East, holding 2,628 stocks. Its top country is Japan at 26%, followed by the U.K. at 16%. Major holdings include ASML Holding, HSBC Holdings, and Roche. The fund leans toward financials (23%) and industrials (20%), with a trailing 12-month yield of 3.40% based on a recent share price of $96.73.
IXUS, with 4,166 holdings, extends its reach to emerging economies. Its top country is Japan at 15%, but Taiwan, an emerging market, ranks second at 9%. Top holdings include Taiwan Semiconductor Manufacturing (4.4%), Samsung Electronics (2.4%), and SK Hynix (2.2%). Sectors are more evenly split between technology and financials, each at 22%. The fund offers a 2.99% yield on a recent $93.94 share price.
Performance and Volatility
Despite the emerging market exposure, IXUS does not carry significantly more small-cap stocks; both funds allocate only about 4% to small-caps and 17% to mid-caps. This keeps their maximum drawdowns very close. The key difference shows up in returns. IXUS outperformed IEFA over the 3-year (18.9% vs. 16.6% annualized) and 10-year (10.1% vs. 9.8%) periods. IEFA edged ahead only on a 5-year basis, with 8.81% vs. 8.77%.
Which Fund to Choose?
With identical costs and similar risk profiles, the decision hinges on whether an investor wants pure developed-market exposure or total international coverage including emerging markets. The historical performance advantage of IXUS suggests it may be the better long-term choice for most portfolios. However, investors with a strong preference for developed markets only, or those seeking a slightly higher yield, might prefer IEFA. Ultimately, the broader diversification of IXUS has delivered a modest but consistent performance edge.