Big ETF Could be Headed for Big Breakout
By any standard the, iShares MSCI EAFE Index Fund (NYSE: EFA) is big. With almost $41.8 billion in assets under management, the ETF is one of the biggest ETFs by that metric of any stripe. EFA is also heavily traded with average daily volume north of 17.4 million shares over the last three months.
More important than those superficial metrics is the potential EFA is showing to make a big move to the upside. This according to noted technical analyst Chris Kimble of Kimble Charting Solutions.
Kimble points out that EFA is facing horizontal resistance around the $59.15 area as well as diagonal resistance brought on by downtrend line going back to the ETF's 2007 high. The right shoulder of a head and shoulders pattern may also be forming in EFA as well, according to Kimble.
The head and shoulders pattern is usually viewed by technical analysts as a bullish reversal pattern, often spotted when a security is in an uptrend. EFA fits the bill. The ETF is just pennies below its 52-week high and has gained almost seven percent in the past three months.
"The global community would benefit if EFA can break from this pattern," said Kimble.
That statement could prove to be accurate because EFA's heft gives it marquee status among ETFs focusing on non-U.S. developed market equities. The Vanguard MSCI EAFE ETF (NYSE: VEA), Vanguard's answer to EFA, is displaying similar bullish traits and is also up about seven percent in the past 90 days.
Investors should note what countries are the primary drivers of EFA's price action. While the fund is light on the most volatile Eurozone members such as Spain and Italy (those two represent barely over fiver percent of EFA's weight), the U.K. and Japan combine for almost 42 percent of the ETF's weight. No other countries garner double-digit allocations within EFA, but Australia and Switzerland each account for more than nine percent of the ETF's weight.
Investors looking for lower volatility alternatives to EFA can consider the iShares MSCI EAFE Minimum Volatility Index Fund (NYSE: EFAV). EFAV, which has almost $416 million in AUM, has a weight to financial services stocks that is about 600 basis points less than EFA's while featuring an allocation to staples stocks that is about 500 points higher. EFAV is up 5.5 percent in the past 90 days.
Another alternative to consider is the PowerShares S&P International Developed Low Volatility Portfolio (NYSE: IDLV), which tracks the S&P BMI International Developed Low Volatility Index. IDLV is Japan-heavy as that country accounts for nearly 39 percent of the ETF's weight. Canada and the U.K. combine for another 32 percent.
IDLV has a 30-day SEC yield of 4.37 percent and a price-to-book ratio of 1.55, according to PowerShares data. EFA has a 30-day SEC yield of 3.61 percent and a price-to-book ratio of 2.62.
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