iShares MSCI EAFE ETF

EFA

Market cap $73.2B

After a decade of US equity dominance, the iShares MSCI EAFE ETF ( NYSEARCA:EFA ) has shown strong recent performance, marking a potential turning point for investors who watched international developed markets trail US counterparts during the past ten years.

The Schwab Fundamental International Equity ETF (FNDF) earns a buy rating for its fundamentals-based, value-oriented smart beta approach, outperforming market-cap weighted peers. FNDF's broader geographic reach, including a 7.55% allocation to South Korea, and sector tilt toward hard assets position it for value rotation and supply chain shifts. FNDF trades at a significant valuation discount (P/E 12.15 vs. EFA's 15.21) and offers higher risk-adjusted returns and better capital preservation in volatile environments.

Stocks in developed economies outside the U.S. tend to trade at lower valuations. Some of the companies are expected to expand their businesses rapidly over the next two years.

I rate Invesco MSCI EAFE Income Advantage ETF a Hold due to its short track record and concerns typical of option-overlay ETFs versus their plain-vanilla counterparts. EFAA offers a 7.6% yield and monthly distributions, significantly higher than iShares MSCI EAFE ETF's 2.85% yield and semi-annual payments. While EFAA's option overlay boosts income, it comes with a 238bps CAGR deficit, raising questions about long-term total return trade-offs.

EFA offers broad developed market exposure but lacks compelling growth prospects, with Europe and Japan facing structural headwinds and limited innovation. Diversification benefits are muted, as EFA excludes emerging markets and many US stocks already provide global exposure, making EFA feel redundant. Yield is stable (2.5%-3%) and drawdown risk is moderate, but better alternatives like IPKW, IDVO, and CGDG offer superior risk-reward and growth potential.

The landscape of international equity ETFs often centers around benchmarks like the MSCI EAFE Index, which measures the performance of developed markets excluding the U.S. and Canada. While passive investing in such broad indexes is a common strategy, active international ETFs may be able to outperform benchmarks and add value to portfolios.

For over a decade, U.S. equities have dominated, but 2025 is shaping up to be a turning point. Several macro trends are converging to make international markets more attractive.

Foreign stocks are poised to outperform U.S. stocks over the next 5 to 10 years as the dollar weakens, reversing 10 years of under-performance. Currency exchange rates significantly impact foreign investment returns, amplifying gains or losses beyond local performance.

As investors weigh the impact of a shifting global economic backdrop and continued volatility in U.S. markets, attention is turning overseas. One fund that has emerged as a notable player in this space is the ALPS International Sector Dividend Dogs ETF (IDOG).

EFA provides exposure to a diversified selection of developed market stocks (with significant concentration in Japan and Western Europe). Historically, EFA has performed quite poorly versus the American and Canadian stock markets. EFA trades at a lower earnings multiple than the S&P 500, but is still expensive versus its own history.