SPGM vs IEFA: Which Global Stock ETF Is the Better Buy?

There is a world of stocks out there. Diversified investors would be wise to hold some in their portfolios. But the question is which is the better fund to get global stock exposure?

The State Street SPDR Portfolio MSCI Global Stock Market ETF (NYSEMKT:SPGM) offers all-in-one global equity exposure, while the iShares Core MSCI EAFE ETF (NYSEMKT:IEFA) targets developed markets excluding North America.

These two funds provide different building blocks for an international portfolio. The iShares fund tracks developed markets like Japan and the United Kingdom, serving as a complement to U.S. holdings, whereas the State Street fund serves as a total-world solution that includes American and emerging-market companies.

Snapshot (cost and size)

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

The iShares fund is slightly more affordable with a 0.07% expense ratio compared to 0.09% for the State Street fund. This price advantage is paired with a higher payout: the iShares fund provides a 3.30% distribution yield based on its June 12 midday stock price of $98.12.

Performance and risk comparison

What's inside

The State Street fund leans heavily into the technology sector, which represents 31% of the portfolio. Its largest positions include Nvidia Corp (NASDAQ:NVDA) at 4.3%, Apple Inc (NASDAQ:AAPL) at 3.88%, and Microsoft Corp (NASDAQ:MSFT) at 2.71%. This fund, which launched in 2012, manages 2,925 holdings and has a trailing-12-month dividend of $1.54 per share.

The iShares fund prioritizes financial services and industrials, which account for almost 23% and just over 20% of assets, respectively. Its largest positions include ASML Holding (NASDAQ:ASML) at 2.46%, HSBC Holdings (NYSE:HSBC) at 1.26%, and Roche Holding at 1.16%. Also launched in 2012, it holds 2,621 stocks and paid $3.18 per share over the trailing 12 months.

Which fund is the better buy?

The choice between these two funds isn’t as simple as it may seem. If you’re aiming just to find performance, then the State Street SPDR Portfolio MSCI Global Stock Market ETF is the choice. SPGM has outperformed IEFA for the year-to-date, 1-year, 3-year, 5-year, and 10-year time frames.

Yet part of being a savvy investor is building your portfolio for the long term. That means making sure you are properly diversified, including by geography, too. Many investors already have exposure to the larger names in the U.S. stock market in their portfolios. U.S. names account for 63% of SPGM’s assets and have been what give it its performance edge, as the U.S. stock market has largely been the best-performing in the world over the past decade.

But the tide may change. For that reason, along with the safety that some diversification provides, the choice is the iShares Core MSCI EAFE ETF if you already have U.S. equities exposure elsewhere in your investments. Given that the IEFA has a lower expense ratio of 0.07% and provides a higher dividend yield, reflecting the tendency of non-U.S. companies to pay out more cash to shareholders than their American counterparts, it’s a solid decision to go with iShares Core MSCI EAFE ETF.

For more guidance on ETF investing, check out this full guide at this link.

HSBC Holdings is an advertising partner of Motley Fool Money. Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Apple, Microsoft, and Nvidia. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.