VEA vs IEFA: How Index Rules Shape Developed-Market Exposure

The Vanguard FTSE Developed Markets ETF (VEA) charges a lower expense ratio and covers more countries, while the iShares Core MSCI EAFE ETF (IEFA) delivers a higher yield and excludes Canadian stocks.

Both VEA and IEFA offer broad exposure to developed market equities outside the U.S., but they diverge on cost, country coverage, and sector allocations. This comparison looks at how these two giants stack up for investors seeking international diversification, focusing on recent performance, risk, and underlying holdings.

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.

VEA is more affordable with a 0.03% expense ratio, while IEFA costs 0.07%. However, IEFA stands out for its higher dividend yield at 2.93%, compared to VEA's 2.7% payout.

Performance & risk comparison

What's inside

IEFA tracks developed markets outside the U.S. and Canada, holding 2,593 stocks across regions with a tilt toward Financial Services (22%), Industrials (20%), and Healthcare (10%). Its largest positions include ASML Holding (AMS:ASML.AS) at 1.70% of assets, Roche Holding (SIX:ROG.SW) at 1.18%, and AstraZeneca (LSE:AZN.L) at 1.18%. The fund has been operating for 13.2 years, providing a long performance history, and has no notable structural quirks.

In contrast, VEA includes Canada and holds a broader basket of 3,873 companies, with sector weights of 24% Financial Services, 19% Industrials, and 11% Technology. Its top positions are ASML Holding (AMS:ASML.AS), Samsung Electronics (KSC:005930.KS), and AstraZeneca (LSE:AZN.L), also each under 1.5% of assets. Both funds are highly diversified, but VEA's broader coverage could matter for those seeking more complete developed market exposure.

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What this means for investors

At a glance, the Vanguard FTSE Developed Markets ETF and the iShares Core MSCI EAFE ETF can look interchangeable. Both give investors broad access to developed-market stocks outside the U.S., and both are often used as long-term building blocks. The real distinction isn’t a short-term performance gap or a few basis points in fees. It’s the index rulebook each fund follows, and the country exposures that rulebook quietly bakes in.

VEA tracks an FTSE benchmark that includes Canada and treats South Korea as developed, thereby expanding the opportunity set and increasing the number of holdings. IEFA tracks the MSCI EAFE IMI index, which excludes Canada and keeps South Korea out of the developed bucket, leaving a more traditional EAFE-style mix. Those definitions shape sector weights and help explain why IEFA has tended to show a higher trailing dividend yield.

For investors, the decision comes down to how investors want to define developed markets in their portfolios. VEA bundles Canada and South Korea into a single developed-markets allocation, while IEFA sticks to the MSCI EAFE framework and leaves those exposures to other sleeves. Choosing between the two is best thought of as more about alignment than preference, where the ETF should align with how international equities are segmented in the rest of your portfolio.

Glossary

ETF: Exchange-traded fund; a pooled investment fund traded on stock exchanges, holding a basket of assets.
Expense ratio: The annual fee, as a percentage of assets, that a fund charges to cover operating costs.
Dividend yield: Annual dividends paid by a fund or stock divided by its current price, expressed as a percentage.
Developed markets: Economies with advanced infrastructure, stable governments, and high income levels, such as Japan, UK, and Canada.
Sector weights: The percentage of a fund's assets allocated to specific industry sectors, like Financial Services or Technology.
Beta: A measure of an investment's volatility relative to the overall market, typically the S&P 500.
AUM: Assets under management; the total market value of assets 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 specific period.
Total return: The investment's price change plus all dividends and distributions, assuming those payouts are reinvested.
Liquidity: How easily an asset or fund can be bought or sold without affecting its price.
Country coverage: The list of countries whose securities are included in a fund’s portfolio.
Structural quirks: Unique features or rules in a fund’s design that may affect its performance or risk profile.

Eric Trie has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard FTSE Developed Markets ETF. The Motley Fool has a disclosure policy.