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Investigating Some Popular International ETFs

ETF Professor

International exchange traded funds, particularly those providing access to developed markets, remain popular destinations for investors. Last year, four of the top 10 ETFs in terms of new assets added were international equity funds. Year-to-date, four international funds are also among the top 10 asset-gathering ETFs.

The iShares Core MSCI EAFE ETF (CBOE: IEFA) has taken in $16.72 billion in new assets this year, more than double the inflows to the second-place ETF. That's after investors added nearly $21 billion to IEFA last year.

What Happened

IEFA is a popular choice for investors looking for diversified international exposure,” CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth said in a Monday note. “Through IEFA, investors gain meaningful exposure to Japan (25 percent of assets), United Kingdom (18 percent), France (10 percent) and Germany (10 percent). In addition, they receive stakes in Switzerland (7 percent) and Italy (3 percent).”

IEFA has become one of the largest developed markets ETFs trading in the U.S., due in part to its deep bench — over 2,500 holdings — and its low fee. With an annual fee of 0.08 percent, or $8 on a $10,000 investment, IEFA is one of the least expensive developed markets ETFs.

Why It's Important

Funds such as IEFA are ideal for investors looking for low-cost, broad-based exposure to multiple countries and regions, while single-country ETFs help tactical investors isolate opportunities in a specific nation.

For example, the iShares MSCI Italy ETF (NYSE: EWI) is the prime avenue to Italian stocks among U.S.-listed ETFs because many diversified Europe funds and products such as IEFA have relatively small weights to Italy. Italy is the third-largest economy in the Eurozone.

EWI is up nearly 5 percent year-to-date. Investors have pulled $24.18 million from the fund this year.

What's Next

A higher financial sector weight in Italy's equity index benefits from wider sovereign spreads to the Bund in the wake of post-election discord and formation of a potential far-right Euroskeptic bloc raises the risk premium for Italian debt, said CFRA's Rosenbluth, quoting Chris Dhanraj, head of iShares' investment strategy for its U.S. ETF business.

“Dhanraj thinks the re-rating in bank prices has provided a significant tailwind to the equity market.”

CFRA has Overweight ratings on IEFA and EWI.

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