Is the MSCI EAFE index and the exchange traded funds (ETFs) that follow them behind the times? The MSCI EAFE index, which stands for Europe, Australasia, and Far East, has been the standard index for broad foreign funds, but it excludes emerging markets, reports Greg Wolper for Morningstar.
MSCI EAFE was mainstream back when emerging markets were viewed as too risky. But many are incorporating emerging markets in their portfolios. Canada is also excluded from the index, yet it has become a major player in the big picture. Still the money continues to flow into iShares EAFE Index (EFA), making it the second largest ETF with $50 billion in assets. This summer, Vanguard launched an ETF that tracks the index, Vanguard Europe Pacific ETF (VEA).
With the continued popularity of the index, it’s likely that investors are using it for broad, international diversification and then filling in with a touch of emerging market and Canada through other indexes.