FILE / VEA-IEFA
2026 edition
DEVELOPED-INTERNATIONAL ETF PAIR
VEA vs IEFA: developed ex-US, two different country lists
VEA includes South Korea (FTSE methodology) and Canada (FTSE includes North America ex-US). IEFA excludes both (MSCI EAFE excludes Canada by definition; MSCI classifies South Korea as emerging). The composition gap is real.
QUICK VERDICT
read this if nothing elsePick the ETF if
VEA if you want a single fund covering all developed markets ex-US including Canada and South Korea, and you want the marginally cheaper expense ratio. The default Vanguard total-international starter.
Pick the index fund if
IEFA if you specifically want EAFE exposure (Europe, Australasia, Far East, no Canada, no South Korea) to fit a portfolio that handles those countries separately, or you are using an iShares-family lineup.
Both deliver developed-markets ex-US equity exposure but the country lists differ. VEA tracks the FTSE Developed All Cap ex US Index at roughly 0.05 percent per the Vanguard VEA product page and includes Canada and South Korea. IEFA tracks the MSCI EAFE Investable Market Index at roughly 0.07 percent per the iShares Core MSCI EAFE ETF page and excludes both. The composition gap matters more than the 2 basis-point fee gap.
EAFE stands for Europe, Australasia, and Far East. By definition the index excludes Canada (treated separately under MSCI's Americas classification) and most of the Middle East. Israel was reclassified to developed in 2010 and is included in both funds.
FIG. A / SPEC SHEET
Side by side
SECTION 02 / WHY EAFE EXCLUDES CANADA
EAFE is a 1969 acronym, not a comprehensive geography
MSCI launched the EAFE index in 1969 as the first international benchmark for US institutional investors. The acronym (Europe, Australasia, Far East) deliberately excluded the Americas, since US investors used a separate domestic-equity benchmark and handled Canada through their North American allocation. The naming convention persists.
Canada is now a top-10 global equity market by market cap and is included in any "world" or "global" benchmark. But MSCI EAFE specifically does not include it. If you hold IEFA you do not own Canadian banks (Royal Bank of Canada, TD Bank), Canadian energy majors (Enbridge, Suncor), or Canadian industrials (Canadian National Railway, Brookfield). To capture Canada you would need to add EWC (iShares MSCI Canada) or hold Canadian-listed Vanguard ETFs.
VEA's FTSE Developed All Cap ex US benchmark includes Canada. Canadian equities run roughly 8 to 10 percent of VEA versus 0 percent of IEFA. For a US investor wanting broad developed-international coverage, this is a meaningful gap.
SECTION 03 / SOUTH KOREA AGAIN
FTSE classifies it as developed, MSCI does not
VEA includes South Korea (FTSE methodology); IEFA does not (MSCI EAFE methodology). South Korea typically runs 4 to 5 percent of VEA, holding Samsung, SK Hynix, and Hyundai among others. To match this exposure with IEFA you would need to add IEMG (iShares emerging markets, where MSCI puts South Korea). See the VWO versus IEMG page for the EM-side analysis of the same classification choice.
The matched-pair logic to avoid double-counting or gaps:
- FTSE family: VEA (developed including South Korea + Canada) + VWO (emerging without South Korea). No double-counting, no gaps.
- MSCI family: IEFA (developed without South Korea or Canada) + IEMG (emerging including South Korea). Canada is excluded; add EWC or accept the gap.
- Mix-and-match: Holding VEA + IEMG double-counts South Korea (in both funds). Holding IEFA + VWO leaves South Korea out of both. Stay within one index family if you split developed and emerging.
SECTION 04 / TAX TREATMENT
Same foreign-tax-credit mechanics as other international ETFs
Both VEA and IEFA pay foreign withholding tax on dividends from European and Asian holdings before income reaches the fund. Both pass the gross dividend and the foreign tax through to you on your 1099-DIV. In a taxable account, claim the foreign tax credit on IRS Form 1116. Inside a tax-advantaged account, the foreign withholding is unrecoverable.
Developed-international funds tend to have higher dividend yields than US equity funds (typically 2.5 to 3.5 percent vs 1.5 to 1.8 percent for the S&P 500). This makes the foreign tax credit more meaningful in absolute dollar terms. The standard Bogleheads tax-efficient placement guidance prefers international developed funds in taxable accounts to capture the credit.
Both funds use the standard ETF in-kind redemption mechanism and have distributed near zero long-term capital gains in most recent years per their issuer-filed annual reports on SEC EDGAR. The wrapper-driven tax-efficiency advantage applies equally to both.
DESK Q&A
Frequently asked
Q01Is VEA or IEFA the better default?
VEA for most US investors. The lower expense ratio, the broader country list (Canada + South Korea), and the longer track record (since 2007) make it the cleaner all-in-one developed-international fund. IEFA is a perfectly fine alternative if you want strict EAFE exposure for portfolio-construction reasons or if you are deliberately using an iShares lineup.
Q02What is the difference between VEA and VXUS?
VEA is developed-only (no emerging markets). VXUS is total ex-US (developed + emerging) at 0.07 percent. VXUS is the single-fund all-international solution. VEA paired with VWO gives you the same total ex-US exposure split into two funds, with marginally more control over the developed-versus-emerging weighting and slightly lower blended expense.
Q03Does VEA include the UK?
Yes. The UK is roughly 14 to 16 percent of VEA, the second-largest country weight after Japan. UK-listed multinationals (HSBC, Shell, AstraZeneca, Unilever, BP, GSK) are major holdings. Same applies to IEFA.
Q04Why does Vanguard charge less than iShares for developed international?
Vanguard's mutual structure and scale produce lower operating costs across its lineup. Vanguard is owned by its funds, which are owned by their shareholders, so the firm runs at near-cost. iShares (BlackRock) is a publicly traded asset manager and prices funds at sustainable margins. The 2 basis-point gap reflects the difference in business models, not in fund quality. Both are operationally robust.
Q05Can I tax-loss harvest between VEA and IEFA?
Probably yes. The two funds track different indexes (FTSE Developed All Cap ex US versus MSCI EAFE IMI) with different country lists, so they are not substantially identical under any reasonable IRS interpretation. Most tax practitioners treat them as suitable wash-sale partners. Consult a CPA for your specific tax situation. The IRS has not issued formal guidance on ETF wash-sale equivalence for this pair.
Q06Has VEA outperformed IEFA?
Annualised return differences over rolling 5-year windows are typically less than 0.4 percentage points, with leadership flipping based on Canada and South Korea performance in the period. VEA's broader country exposure gives slightly more diversification but does not consistently outperform.
DESK ROUTING
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