Exchange traded fund (ETF) investors might wonder why Katie Couric doesn’t include the EAFE Index when she reports on the major U.S. indexes. Shouldn’t we be watching a major global index as well? It’s a great question that Matt Hougan of Index Universe raises.
U.S. investors today have about 13% of their portfolio allocated to global stocks. However, global market capitalization is dominated by foreign companies. In 1980, U.S. companies made up about 62% of the global market capitalization where international companies accounted for 38%. By December of 2004, the allocations were split evenly: about 50% in the United States and 50% outside the United States, according to ING’s website. Today, 57% of the global market capitalization is international and the United States comprises 43%. As globalization increases and emerging markets keep soaring, this growing trend is likely to continue.
Hougan suggests Katie should give a nightly update on the EAFE Index along with the Dow and S&P 500. It invests in 21 various Asian and European markets, which provides a well-rounded bouquet of international markets. The ETF that tracks the EAFE Index is the iShares MSCI EAFE Index (EFA). If you want to jump on international investing, EFA is arguably "the" international ETF to watch.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.