IEFA ETF

Wall Street frequently advises investors that diversifying their portfolios is crucial. However, what is the most effective way to begin investing in markets beyond the U.S.?

The iShares Core MSCI EAFE ETF (IEFA) is advised to be sold because it lacks good diversification, has performed poorly in the past, and faces economic challenges. A strategy that involves shorting IEFA while investing in SPY could help create profits and reduce market risk. Although IEFA has some internal diversification, its strong connection to U.S. stocks limits its ability to diversify a portfolio effectively.

iShares Core MSCI EAFE ETF offers diversified exposure to developed markets outside the U.S., with a low expense ratio of 0.07% and 2,704 holdings. IEFA's sector and geographical diversification, with significant holdings in Japan, the U.K., and France, supports a balanced risk profile and potential for stable returns. Despite its diversification, IEFA's performance may not consistently outpace the S&P 500, especially during U.S. market downturns due to its implicit short-USD hedge.

iShares Core MSCI EAFE ETF has high exposure to European stocks. IEFA rebounded in 2022, but still underperformed the S&P 500 index in the long run. The fund's limited exposure to information technology sector relative to the S&P 500 index may drag its future performance.

Hello! This is MarketWatch reporter Isabel Wang bringing you this week's ETF Wrap. In this edition, we look at Europe exchange-traded funds on the back of the first interest-rate cut by the European Central Bank since 2019. Investors are fretting over whether there's room for these regional equities to build on their record-hitting rally so far this year.

iShares Core MSCI EAFE ETF offers diversification and potential growth through investing in stocks from Europe, Australasia, and Far East regions. EAFE stocks provide access to world-class companies in sectors underrepresented in the U.S. and have higher dividend yields. IEFA offers a balanced portfolio with low expense ratio, making it a cost-effective option for diversified exposure to developed markets outside North America.

iShares Core MSCI EAFE ETF provides exposure to developed markets across Europe, Australia, Asia, and the Far East. The fund is well-diversified and has a balanced sector exposure, reducing risk but therefore also admittedly the potential for alpha. Nevertheless, IEFA appears undervalued on the basis of discounted cash-flow valuation approach, suggesting it is a good long-term hold.

IEFA is a large and efficient ex-US/Canada developed markets index fund. Though it charges a low expense ratio, investors can find even cheaper funds. If you are looking for a methodology that emphasizes value or yield performance, there are also some alternatives for you to consider.

Equities market, particularly US large tech names, have outperformed this year despite concerns about high interest rates. International equities, such as iShares Core MSCI EAFE ETF, are often overlooked but could be a good option for portfolio diversification. iShares Core MSCI EAFE ETF has a diversified portfolio and has performed similarly to its peers, but underperformed US and European markets.