IEFA vs. SCHF: Lower Fee or Higher Dividend?

The Schwab International Equity ETF (NYSEMKT:SCHF) offers lower costs and a marginally better five-year performance, while the iShares Core MSCI EAFE ETF (NYSEMKT:IEFA) brings a higher yield and broader diversification.

Both SCHF and IEFA aim to provide core international equity exposure by tracking developed markets outside the U.S., but they differ in cost, sector weights, and portfolio breadth. Comparing these two large, liquid funds may help clarify which approach fits best for an investor seeking international diversification.

Snapshot (cost & size)

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.

IEFA charges a slightly higher fee than SCHF, but offers a higher dividend yield, which may appeal to those prioritizing income over cost minimization.

Performance & risk comparison

What's inside

iShares Core MSCI EAFE ETF holds 2,608 stocks covering developed markets outside the U.S. and Canada, and has been around for over 13 years. Financial Services (22%), Industrials (19%), and Healthcare (11%) lead its sector allocations. Top positions include ASML Holding Nv (ENXTAM:ASML), Astrazeneca Plc (LSE:AZN), and Roche Holding AG (XSWX:ROG), each at around 1.8% to 1.2% of assets, reflecting a highly diversified approach.

Schwab International Equity ETF is also widely diversified, but with a smaller basket of 1,500 holdings. Its sector mix skews a bit more toward Financial Services (25%), Industrials (19%), and Technology (11%). The largest holdings are ASML Holding Nv, Samsung Electronics Ltd (KOSE:A005930), and Roche Holding AG, but each makes up less than 1.7% of the portfolio, underscoring the fund’s broad spread.

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Foolish take

ETFs are popular with investors because of the instant diversification they offer. Using ETFs as a the singular investment vehicle or as a base on which to add other assets like individual stocks, real estate, etc. can make sense for a lot of investors. The two ETFs highlighted here could be especially interesting to U.S.-based investors as they offer a quick and easy way to get international exposure, a sector many may be unfamiliar or uncomfortable with.

As highlighted above, these two ETFs are very similar so investors have to weigh the details in order to make a decision on where to spend their capital. It's worth spending a lot of time thinking about fees whenever making a decision between two ETFs. In this case, IEFA's fee is more than twice that of SCHF, which could have a significant impact over time.

While it's true that IEFA pays a higher dividend, the lower fee and comparable return profile makes SCHF compelling. Investors may also want to consider the sector weights. While both funds are most heavily weighted toward Financials and Industrials, the Technology sector plays a larger role in SCHF whereas Healthcare stocks are more represented in IEFA.

Glossary

ETF (Exchange-Traded Fund): A fund traded on stock exchanges, holding a basket of assets like stocks or bonds.
Expense ratio: The annual fee, as a percentage of assets, that a fund charges its investors.
Dividend yield: Annual dividends paid by a fund, expressed as a percentage of its share price.
Beta: A measure of a fund's volatility compared to the overall market, typically the S&P 500.
AUM (Assets Under Management): The total market value of assets that a fund manages on behalf of investors.
Max drawdown: The largest percentage drop from a fund’s peak value to its lowest point over a given period.
Sector allocation: The distribution of a fund’s investments across different industries or sectors.
Developed markets: Economies with advanced infrastructure, stable governments, and high income levels, such as Europe and Japan.
Diversification: Spreading investments across various assets to reduce risk.
Portfolio breadth: The number of different holdings within a fund, indicating how widely its assets are spread.
Total return: The investment's price change plus all dividends and distributions, assuming those payouts are reinvested.

Jeff Santoro 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.