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What Is The MSCI EAFE Index?
MSCI EAFE Index is an index created by Morgan Stanley Capital International (MSCI Inc.) to assess the performance of developed nations like European, Australasian, and the Far East, excluding Canadian & American stock markets. In addition, it was used as a performance benchmark for important international stock markets beyond the United States and Canada.
The index comprises stocks that cover almost eighty-five percent of free float-adjusted market capitalization representing all those countries that form its part. Its prime objective lies in obtaining absolute yield exceeding or equaling the return obtained from FTSE Actuaries World ex U.S. Index or the unhedged MSCI EAFE Index or both upon a risk-adjusted basis.
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- MSCI EAFE Index is a special index developed by Morgan Stanley Capital International to benchmark the performance of international non-United States & non-Canadian securities market-weighted against size, sector, and style.
- Analysts use it as a performance benchmark for international stock markets by comparing the EAFE (European, Australasian, and the Far East) index with the funds' performance.
- It has lesser availability, lower return, and limited investment options compared to the S&P 500 Index, which is listed globally, giving high returns and various investment options.
- Day traders trade many EAFE ETFs (Exchange Traded Funds) in the USA like Vanguard FTSE Developed Markets ETF, iShares Core MSCI EAFE ETF, iShares MSCI EAFE ETF, iShares MSCI EAFE Value ETF, & iShares MSCI EAFE Small-Cap ETF.
MSCI EAFE Index Explained
MSCI EAFE index is the oldest international stock index developed by MSCI in 1969 as a stock index covering the non-US and non-Canadian securities market. It serves as a criterion of international markets related to twenty-one major MSCI indices across Europe, Australasia, and all the Middle East nations.
Therefore, the MSCI-EAFE index is similar in nature and functions to the S&P 500 index, which benchmarks the performance of small & large-cap funds within the American stock market. The only difference has been that the MSCI-EAFE Index was created specifically by Morgan Stanley Capital International (MSCI) to measure the small & large-cap funds outside the U.S. and Canada.
It comprises more than 900 stocks of twenty-one nations from the world. Therefore, it tends to be a market-capitalization-weighted index. Simply put, all its specific constituents get weighted concerning their market capitalization. As a result, countries with the largest securities market get the most significant relative weighing within this index, like the United Kingdom & Japan. It also means that small changes happening in the values of markets of large securities lead to substantial movement of the MSCI-EAFE index.
MSCI EAFE index fund consists of securities of multiple sectors, including financials, industrial, consumer durables, and healthcare, among many others. Moreover, the financials sector has the highest weighting in the EAFE index with a 17.60% value. Likewise, the Japanese securities market has the highest index weight, with 22.6%. The index is based on MSCI Global Investable Market Indexes (GIMI) Methodology.
GIMI has been a rigorous and uniform approach to index development that permits precise comparisons throughout geographical areas and across every market capitalization based on style, sector, and size components and variations. Its main objective has been the index's liquidity, replicability, and credibility.
Uses
Institutional investors and asset managers use this index as a performance metric for the globally developed stock market. Managers can determine whether they are improving their clients' portfolios by comparing the performance of funds to that of the EAFE Index. In addition, stocks from the EAFE can be included in portfolios by investors and portfolio managers who want a higher level of diversification than just the equity markets in the United States and Canada. Typically, you can achieve this by buying index-linked financial instruments, including exchange-traded funds (ETFs).
MSCI EAFE Index ETF
Let us observe the major ETFs that are listed on the MSCI EAFE index dated 28th October 2022 in the following table:
| Symbol | ETF Name | Region | Total Assets ($MM) | YTD | Avg Volume | Previous Closing Price | 1-Day Change |
|---|---|---|---|---|---|---|---|
| VEA | Vanguard FTSE Developed Markets ETF | Developed Markets | $90,750.10 | -23.07% | 1,89,44,262 | $38.59 | -0.67% |
| IEFA | iShares Core MSCI EAFE ETF | Developed Markets | $80,799.80 | -23.78% | 1,29,78,088 | $55.73 | -0.85% |
| EFA | iShares MSCI EAFE ETF | Developed Markets | $42,009.90 | -22.99% | 2,37,36,112 | $59.28 | -0.94% |
| EFV | iShares MSCI EAFE Value ETF | Developed Markets | $14,044.80 | -15.67% | 34,82,294 | $41.30 | -0.46% |
| SCZ | iShares MSCI EAFE Small-Cap ETF | Developed Markets | $9,668.90 | -28.62% | 18,43,433 | $51.22 | -0.68% |
| EFG | iShares MSCI EAFE Growth ETF | Developed Markets | $9,168.87 | -30.15% | 11,53,564 | $76.26 | -1.38% |
| EFAV | iShares MSCI EAFE Min Vol Factor ETF | Developed Markets | $7,029.25 | -22.41% | 13,38,106 | $58.57 | -0.59% |
| ESGD | iShares ESG Aware MSCI EAFE ETF | Developed Markets | $6,171.77 | -23.80% | 6,68,958 | $59.33 | -0.98% |
| DBEF | Xtrackers MSCI EAFE Hedged Equity ETF | Developed Markets | $4,059.79 | -9.04% | 6,35,195 | $35.21 | -0.23% |
| HEFA | iShares Currency Hedged MSCI EAFE ETF | Developed Markets | $3,517.03 | -8.94% | 6,95,026 | $31.39 | -0.38% |
| HDEF | Xtrackers MSCI EAFE High Dividend Yield Equity ETF | Developed Markets | $937.31 | -14.25% | 4,17,415 | $19.27 | -0.57% |
It must be noted that EAFE ETFs or BMO MSCI EAFE ETFs make investments in companies with headquarters in parts of Eastern Europe, Australasia, and the Middle East.
Chart
Below is the chart related to the MSCI EAFE Index dated October 28, 2022:
| Previous Close | 59.28 |
| Open | 59.19 |
| Bid | 59.84 x 36900 |
| Ask | 60.36 x 28000 |
| Day's Range | 59.08 - 59.87 |
| 52 Week Range | 54.61 - 82.00 |
| Volume | 1,92,25,741 |
| Avg. Volume | 2,37,61,904 |
| Net Assets | 39.68B |
| NAV | 59.89 |
| PE Ratio (TTM) | 22.29 |
| Yield | 5.38% |
| YTD Daily Total Return | -23.12% |
| Beta (5Y Monthly) | 1.02 |
| Expense Ratio (net) | 0.32% |
| Inception Date | 14-08-2001 |
MSCI EAFE Index vs S&P 500
Let us look at the differences between the MSCI-EAFE Index & S&P 500 in tabular form:
| MSCI EAFE Index | S&P 500 Index |
|---|---|
| This index tracks the MSCI EAFE index performance of small and large cap securities in non-US and Non-Canadian countries. | S&P 500 tracks the performance of large-cap securities in the United States. |
| All the listed companies belong to countries foreign to the U.S. | Therefore, only American companies get listed here. |
| It has securities of more than fifteen hundred mid & large cap companies related to the 23 most developed nations besides the U.S. & Canada listed. | This index has only 505 US companies listed in its index. |
| It offers much more diversification in securities than other indexes. | However, it remains limited to only U.S.-based companies' stocks. |
| The securities listed in it come from a variety of exchanges globally. | However, the securities listed in it come from only U.S. exchanges. |
| Its performance has been dismal. | It performs far better than its counterpart. |
| One cannot easily invest in the MSCI-EAFE index owing to its lesser availability globally through ETFs. | One can easily invest in S&P 500 index owing to its easier availability globally through ETFs. |
Frequently Asked Questions (FAQs)
A stock index called the MSCI EAFE Index includes large and mid-cap representation from 21 Developed Markets nations. However, unlike stocks, there has been no such ticker symbol for MSCI EAFE Index.
On March 31, 1986, the MSCI EAFE Index was introduced. All the developed countries besides U.S. and Canada have been on the index. It includes the following developed market nations: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the UK.
The EAFE Index, created in 1969 by Morgan Stanley Capital International (MSCI), includes more than 900 equities from 21 different nations. Investors and asset managers frequently use the EAFE Index to measure how globally well-developed market equities have performed.
Exposure to emerging markets and Canada is where the two indices diverge most. For example, EAFE, which stands for Europe, Australasia, and the Far East, includes markets like the UK, Australia, and Japan but leaves out the United States and Canada.
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