International ETFs are one way to diversify a portfolio of U.S. stocks. Most investors gravitate to ETFs tracking the MSCI EAFE Index, the well-established benchmark for international developed markets.
However, there are many ways to carve up non-U.S. stocks that are worthy of consideration.
When it comes to developed foreign market exposure, most investors turn to the third largest U.S.-listed ETF, the iShares MSCI EAFE Index Fund ETF (NYSEArca: EFA), with $36.5 billion in assets. The ETFs almost fully replicates the MSCI Europe, Australasia and Far East Index, which holds large- and mid-cap companies listed in developed Asian and European markets. EFA has a 0.34% expense ratio, 925 holdings and a 3.33% yield.
EFA’s sector allocations include financials 23.2%, industrials 12.4%, consumer staples 11.8%, consumer discretionary 10.3%, health care 10.0%, materials 9.5%, energy 8.4%, telecom 5.4%, information tech. 4.2% and utilities 4.0%. Country allocations include U.K. 22.7%, Japan 19.7%, France 9.0%, Switzerland, 8.8%, Australia 8.7%, , Germany 8.5%, Sweden 3.2%, Spain 3.0%, Netherlands 2.8% and Hong Kong 2.8%.
The MSCI EAFE Index is heavily tilted toward the United Kingdom and Japan economies and the financials sector.
Vanguard MSCI EAFE (NYSEArca: VEA) tracks the same index and has nearly $10 billion in assets.
Other options beyond MSCI EAFE
Alternatively, the Guggenheim MSCI EAFE Equal Weight ETF (NYSEArca: EWEF) holds the same stocks as the MSCI EAFE Index but equal weights them, which will provide a greater emphasis on mid-cap stocks. EWEF has a 0.56% expense ratio, 794 holdings and a 2.83% yield.
EWEF’s sector allocations include financials 23.0%, industrials 19.4%, consumer discretionary 13.7%, materials 10.8%, consumer staples 7.1%, info tech 6.6%, health care 6.5%, utilities 4.7%, energy 4.2% and telecom services. Country allocations include Japan 32.2%, U.K. 12.6%, France 8.1%, Australia 8.0%, Germany 5.8%, Sweden 4.1%, Switzerland 4.0%, Hong Kong 3.5%, Singapore 3.3%, Italy 3.0%, Netherlands 2.9% and Spain 2.8%.