Developed Stability or Emerging Growth: How IEFA and SCHE Shape International Returns
Key Points
IEFA carries a slightly higher dividend yield and a larger assets under management (AUM) than SCHE
SCHE tilts toward technology and emerging markets, while IEFA focuses on developed markets and industrials
IEFA has delivered stronger risk-adjusted returns and a smaller drawdown over five years
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Schwab Emerging Markets Equity ETF (NYSEMKT:SCHE) and iShares Core MSCI EAFE ETF (NYSEMKT:IEFA) share identical expense ratios, but differ in yield, regional exposure, and risk profiles, with IEFA offering a higher payout and lower volatility.
Both SCHE and IEFA aim to provide diversified international equity exposure at a low cost, but their focus areas set them apart: SCHE tracks emerging markets, while IEFA targets developed markets outside the U.S. and Canada. This comparison unpacks key differences in cost, risk, yield, and portfolio construction for investors weighing these global ETFs.
Snapshot (cost & size)
| Metric | SCHE | IEFA |
|---|---|---|
| Issuer | Schwab | IShares |
| Expense ratio | 0.07% | 0.07% |
| 1-yr return (as of 2026-02-04) | 29.77% | 33.81% |
| Dividend yield | 2.7% | 3.4% |
| Beta | 0.87 | 1.01 |
| AUM | $12.2 billion | $172.4 billion |
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.
Both ETFs are equally affordable with a 0.07% expense ratio, but IEFA stands out for its higher 3.4% yield compared to SCHE’s 2.7%, which may appeal to income-focused investors.
Performance and risk comparison
| Metric | SCHE | IEFA |
|---|---|---|
| Max drawdown (five years) | -35.70% | -30.41% |
| Growth of $1,000 over five years | $1,058 | $1,353 |
What's inside
IEFA holds 2,589 stocks across developed markets in Europe, Australasia, and the Far East, with financial services (22%), industrials (20%), and healthcare (11%) as its top sectors. Its largest positions include Asml Holding Nv (AMS:ASML.AS), Roche Holding Par Ag (SIX:ROG.SW), and Hsbc Holdings Plc (LSE:HSBA.L). With 13.3 years of track record and no notable quirks, IEFA offers broad, stable exposure to non-U.S., non-Canadian developed markets.
SCHE, by contrast, provides emerging markets access, with technology and financial services each making up 23% of the portfolio and consumer cyclicals at 13%. Its largest holdings are Taiwan Semiconductor Manufacturing (2330.TW), Tencent Holdings Ltd (0700.HK), and Alibaba Group Holding Ltd (9988.HK). The fund’s composition results in greater exposure to higher-growth, higher-volatility regions compared to IEFA’s developed market focus.
For more guidance on ETF investing, check out the full guide at this link.
What this means for investors
International equity investing is less about geography than about where risks enter the portfolio. That is the real decision behind the Schwab Emerging Markets Equity ETF and the iShares Core MSCI EAFE ETF. Both ETFs target outside the U.S., but they are built on very different assumptions about growth, stability, and how markets behave when conditions shift.
IEFA generates returns from developed economies with established institutions, deep capital markets, and predictable earnings, resulting in steadier performance and higher income.SCHE operates in a more dynamic setting. Emerging markets can grow faster, but returns are tied more closely to currency movements, political developments, and the flow of global capital. When investors are comfortable taking risks, that exposure can lift results. When confidence weakens, those same markets tend to feel it first.
For investors, IEFA is appropriate if you are seeking to balance international and U.S. stocks while providing reliable income. SCHE is better suited for investors who recognize the cyclical nature of emerging markets and are willing to accept greater volatility for higher long-term growth potential. The decision is not just between developed and emerging markets, but whether international exposure should stabilize the portfolio or introduce additional risk.
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Eric Trie has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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