“These tilts aren’t too exaggerated because the fund’s sector and country weights are anchored to the MSCI EAFE Index. Not surprisingly, the fund’s quality holdings tend to be less sensitive to the business cycle than their peers, which helps provide a smoother ride,” notes Bryan.
Although neither EFAV nor IDLV is particularly heavy on countries that are legitimate candidates for near-term interest rate hikes, IDLV is the less rate-sensitive of the pair as utilities and telecom stocks represent just 12% of that fund’s weight.
IDLV tracks the S&P BMI International Developed Low Volatility Index, which is comprised “of the 200 least volatile stocks of the S&P Developed ex. US and South Korea LargeMid Cap BMI Index over the past 12 months,” according to PowerShares.
EFAV’s holding are pulled from the MSCI EAFE Minimum Volatility Index and the selection process includes “keeping stock weights between 0.05% and 1.5% of the portfolio, sector and country weights within 5% of the EAFE Index (this limit is tighter for countries that represent less than 2.5% of the MSCI EAFE Index), and limit one-way turnover to 10%,” according to Morningstar.
iShares MSCI EAFE Minimum Volatility ETF
Tom Lydon’s clients own shares of EFA.