Assets, including ETFs, that are held in individual retirement accounts (IRAs) are usually considered core positions and held for long time periods. With that in mind, investors should have exposure to international equities in their IRAs.
For conservative investors looking to fill international voids in their IRAs, low volatility ETFs, such as the iShares Edge MSCI Min Vol EAFE ETF (CBOE: EFAV), are ideas to consider.
EFAV “seeks to track the investment results of an index composed of developed market equities that, in the aggregate, have lower volatility characteristics relative to the broader developed equity markets, excluding the U.S. and Canada,” according to iShares.
EFAV tracks the MSCI EAFE Minimum Volatility (USD) Index, a low volatility answer to the widely followed MSCI EAFE Index.
EFAV is “trying to not necessarily own the least volatile stocks, but it’s looking at stocks that in combination will provide the lowest overall volatility. It’s looking at diversification as well as the individual defensive characteristics of each stock,” said Morningstar in a recent note.
Exploring EFAV ETF
EFAV excludes U.S. and Canadian equities and is home to 287 stocks. The fund’s three-year standard deviation of 8.87% is below that of the MSCI EAFE Index. Japan and Switzerland combine for almost 43% of EFAV’s geographic exposure.
“I think that’s an important thing for a core holding because it’s not going to load up on just utilities or just consumer defensive stocks,” said Morningstar. “It’s still going to own some tech stocks, still going to own some energy stocks. In fact, it actually anchors its sector weightings to that of the broader market, limits itself to within 5%. So, you get a pretty well-diversified portfolio here.”