The International Crossroads: Emerging Growth or Developed Stability?

The primary distinction between iShares Core MSCI Total International Stock ETF (NASDAQ:IXUS) and iShares Core MSCI EAFE ETF (NYSEMKT:IEFA) is geographic scope: the former includes emerging markets and Canada, while the latter focuses on developed international stocks.

Both exchange-traded funds serve as low-cost foundations for international equity exposure. While iShares Core MSCI Total International Stock ETF aims for the total international market, including small caps and emerging economies, the iShares Core MSCI EAFE ETF targets developed markets in Europe, Australasia, and the Far East.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

Both ETFs are exceptionally affordable with matching 0.07% expense ratios. Investors seeking higher income may find iShares Core MSCI EAFE ETF more appealing, as it currently offers a higher payout, with a 0.40 percentage-point yield gap.

Performance & risk comparison

What's inside

iShares Core MSCI EAFE ETF tracks developed markets with a portfolio of 2,625 holdings. It concentrates heavily on financial services at 23%, industrials at 18%, and technology at 12%. Its largest positions include ASML Holding (ENXTAM:ASML) at 2.47%, Roche Ps Par Ag at 1.34%, and Shell (LSE:SHEL) at 1.26%. It was launched in 2012. iShares Core MSCI EAFE ETF has paid $3.29 per share over the trailing 12 months, which, on its recent ~$95.68 share price, works out to a 3.4% yield.

iShares Core MSCI Total International Stock ETF offers a broader reach with 4,580 holdings, incorporating emerging markets that the other fund omits. Its sector allocation includes financials at 23%, information technology at 19%, and industrials at 15%. Top holdings include Taiwan Semiconductor Manufacturing at 4.36%, Samsung Electronics Ltd (KOSE:A005930) at 1.85%, and ASML Holding at 1.48%. It was launched in 2012. iShares Core MSCI Total International Stock ETF has paid $2.80 per share over the trailing 12 months, which, on its recent ~$92.43 share price, works out to a 3% yield.

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Which looks like the better buy

When comparing the iShares Core MSCI Total International Stock ETF (IXUS) and the iShares Core MSCI EAFE ETF (IEFA), investors should consider several key factors. Let's see what they tell us about each fund.

First, we should examine each fund's strategy. IXUS, for its part, is a fund with a broad strategy covering large-, mid-, and small-cap stocks across developed and emerging economies outside North America. IEFA, on the other hand, also holds large-, mid-, and small-cap stocks, but with a more refined focus on developed economies. As a result, IXUS holds Taiwanese stocks like TSMC, while IEFA excludes Taiwan, opting for a larger share of Japanese stocks.

Two other important factors are historical performance and income potential. Despite their strategic differences, the funds have registered remarkably similar performance histories. Over the last five years, IXUS has generated a total return of 49.74%, equating to a compound annual growth rate (CAGR) of 8.41%. IEFA has delivered a 49.81% total return, with an 8.42% CAGR. Both funds generate steady income, with IEFA boasting a 3.4% dividend yield and IXUS a 3% yield.

One final factor to weigh is cost. In this case, the two funds have identical annual expense ratios of 0.07%.

In summary, IXUS and IEFA are both international ETFs with very similar profiles. Ultimately, the choice between these two largely comes down to investor preference. Those with a bullish outlook on emerging economies may lean toward IXUS. Those who favor owning only stocks from developed economies or have a taste for higher yields may prefer IEFA.

Jake Lerch has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML. The Motley Fool recommends Roche Holding AG and Roper Technologies. The Motley Fool has a disclosure policy.