International equity ETFs are a major reason why ETFs easily eclipsed previous inflows records this year, but many investors remain under-allocated to foreign stocks.
Highlighting the theme of investors flocking to ex-US developed markets stocks and exchange traded funds this year, the iShares Core MSCI EAFE ETF (BATS: IEFA) is one of 2017’s top asset-gathering ETFs. In fact, only one ETF has added more new assets than IEFA this year.
IEFA debuted nearly five years ago as a cost-effective alternative to the iShares MSCI EAFE ETF (NYSEArca: EFA), which tracks the developed EAFE or European, Australasia and Far East countries. IEFA charges just 0.08% per year, the equivalent of $8 on a $10,000 position, while EFA has an annual fee of 0.33%.
“Markets outside the U.S. represent half of the total value of the 47 developed and emerging stock markets that make up the MSCI All Country World Index (Source: MSCI). Yet more than 80% of U.S. investors hold only domestic stocks, according to Morningstar,” said BlackRock in a recent note. “We suffer from a chronic case of home country bias, and in the process we may miss a lot of chances to potentially improve the risk/return in portfolios. It’s understandable. With years of supernormal returns from U.S. stock markets, investors with diversified global portfolios may feel fatigued by trailing the U.S. market.”
IEFA holds over 2,500 stocks with over half the ETF’s combined geographic weight dedicated to Japan, the U.K. and France. Overall, 16 countries are represented in the ETF. Eleven of those countries are European nations.