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

iShares Core MSCI EAFE ETF (IEFA)

  • 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.

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