ETF Trends publisher Tom Lydon discussed the iShares Core MSCI EAFE ETF (IEFAon this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.


  • The most popular ETF play of 2018
    • +$18 billion net inflows year-to-date
  • Great for diversified exposure to foreign developed market stocks
    • The fund holds more than 2,500 stocks of all sizes listed developed markets in Europe, Asia, and the Pacific, covering 99% of the investable market.
    • Traditional market-cap weighting, which promotes low turnover and tilts the portfolio toward large multinationals with a global footprint
    • does not include Canadian or South Korean stocks
  • Investors interested in foreign developed markets have been dumping EFA for IEFA
    • The iShares MSCI EAFE ETF (EFA) use to be the go-to for foreign developed market exposure
      • EFA has been among the most hated ETFs of 2018
      • EFA saw -$8.3 billion in outflows YTD
    • IEFA comes with a much cheaper 0.08% expense ratio, compared to EFA’s 0.32% expense ratio
    • Additionally, IEFA is more comprehensive as it includes more small-cap companies
    • EFA largely focuses on mid- to large-cap companies
  • Valuations
    • Many investors are looking into international equities in an extended bull market environment
    • U.S. valuations look pricey on a historical basis
    • IEFA trades at a 14.6 price-to-earnings and a 1.6 price-to-book
    • The S&P 500 shows a 16.9 P/E, 2.8 P/B
  • Currency risk
    • A stronger U.S. dollar has weighed on returns after the weaker foreign currency-denominated returns are converted back into USD
    • However, many of these foreign developed markets also thrive on a weaker dollar environment
      • Notably, Europe and Japan are known for their large export-oriented economies
      • The escalating Trump tariff talks, though, have dampened some sentiment of improving revenue from these exporting countries
  • iShares Core MSCI EAFE ETF
    • Top holdings: nestle 1.4%, HSBC 1.1%, Novartis 1.0%, Royal Dutch Shell 0.9%, Roche Holding 0.9%
    • Sector weights: financials 18.5%, industrials 15.3%, consumer discretionary 12.8%, consumer staples 10.5%, health care 10.1%, materials 8.2%, information technology 7.6%, energy 5.4%, real estate 4.6%, telecom 3.3%, utilities 3.1%
    • Top country weights: Japan 25.2%, UK 17.9%, France 9.8%, Germany 8.9%, Switzerland 7.2%, Australia 6.9%

For more podcast episodes featuring Tom Lydon, visit our podcasts page.