3 EAFE ETFs Your Broker Forgot to Mention (EFA, DWM, EFAV)
Everyone loves a good global investment acronym and one of the oldest is EAFE, which represents Europe, Australia and the Far East. Many investors probably don't realize the MSCI EAFE Index is more than 40 years old.
That's the index tracked by the iShares MSCI EAFE Index Fund (NYSE: EFA), the standard-bearer of EAFE ETFs. The iShares MSCI EAFE Index Fund will celebrate its eleventh birthday in August and since its August 2001 debut, the fund has amassed almost $36.5 billion in assets under management. At the end of March, EFA was the fifth-largest U.S. ETF by assets.
The top-10 country weights in EFA represent 89% of the fund's geographic allocations and the U.K. and Japan combine for 44% on their own. Large weights to those two countries may not be what investors are looking for these days, so let's examine some of the other EAFE funds your broker probably didn't tell you about.
WisdomTree DEFA Fund (NYSE: DWM) On a pure performance basis, it must be acknowledged that EFA has outperformed the WisdomTree DEFA Fund year-to-date, over the past year and over the past five years, though the differentials are narrow. There are other important differences that might bode well for DWM reversing that trend.
First, DWM devotes significantly less weight to the U.K. and Japan (less than 35%) and more weight to Australia (almost 13.1%) than EFA does. Second, DWM has an almost 8% combined weight to Hong Kong and Singapore compared to just over 4% for EFA. Finally, DWM's dividend yield is over 100 basis more than EFA's.
WisdomTree DEFA Equity Income Fund (NYSE: DTH) The WisdomTree DEFA Equity Income Fund presents investors with another different spin on EAFE when it comes to geographic allocations. The U.K., Australia and France combine for 52% of this fund's weight, indicating there is some risk here as the U.K. is in a recession. Combine that with France's potential for a credit downgrade and the country's hotly contested presidential election and DTH may not be for the faint of heart at the moment.
Spain and Italy combine for another 11% of DTH's weight, so to this point, it may appear that DTH isn't all that attractive. On the contrary, DTH might be worth a look, at least for income investors. DTH's yield is close to 5% giving it one of the best yields in EAFE ETF universe.
iShares MSCI EAFE Minimum Volatility Index Fund (NYSE: EFAV) The volatility ETF craze is not confined to U.S. borders. Some low volatility emerging markets ETFs have proven popular with investors and it appears EFAV is carving out a nice niche for itself as well.
Nearly two-thirds of EFAV's country exposure goes to the U.K., Japan and Switzerland, but the fund dials down its exposure to financials (16.83%) while carrying an almost 16.6% weight to staples and an almost 15% allocation to health care names.
EFAV debuted in October 2011 and already has more than $31 million in AUM. With an expense ratio of 0.2%, EFAV is noticeably cheaper than EFA, which charges 0.34%. Year-to-date, EFAV has lagged EFA, but in the past month and three months, EFAV is the clear winner.
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