A fine choice for international-markets exposure

Broad diversification and low fees earn iShares Core MSCI EAFE IMI Index a Silver Analyst Rating.

Christopher Davis 20 December, 2016 | 6:00PM

 iShares Core MSCI EAFE IMI Index (XEF) tracks the MSCI EAFE Investable Markets Index, which includes 99% of the developed world’s market cap outside of North America. This broadly diversified benchmark better reflects active international managers’ hunting ground than the more widely used MSCI EAFE Index, which covers 85% of the developed ex-North America universe. The EAFE IMI’s all-cap complexion gives XEF more exposure to mid- and small caps than the International Equity category average; its $29 billion average market cap weighs in a bit below the $39 billion category average.

During the past decade, the index's correlation with the S&P/TSX Composite Index was 60%, while the typical fund in the category had a 67% correlation. With more than 2,000 holdings, position sizes are small, even among the largest companies; the top 10 holdings make up less than 15% of assets. Its heaviest sector concentration is financial services, which soak up 20% of assets. Consumer cyclicals and staples, healthcare and industrials names largely make up the rest, each sporting similarly sized weightings.

The largest concentration risks come from country and currency concentration. European stocks make up more than 60% of the portfolio, with half of this weighting tied directly to the value of the euro. The British pound comprises the lion's share of the remainder, making up roughly 20% of assets, followed by the Swiss franc, at approximately 8%. The next largest currency exposure is the Japanese yen, accounting for nearly a quarter of the fund. These numbers, though, likely overstate the benchmark's country and currency risks. The extensive global operations of its largest holdings, such as  Nestlé (NSRGY),  Toyota (TM),  BP (BP) and  Anheuser-Busch Inbev (BUD), means the fund is exposed to a larger range of country and currency markets than it appears at first blush.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Anheuser-Busch InBev SA/NV ADR57.73 USD-3.96
BP PLC ADR24.41 USD-4.61
Nestle SA ADR104.82 USD-0.31
Toyota Motor Corp ADR147.93 USD-0.89

About Author

Christopher Davis

Christopher Davis  Christopher Davis is Director of Manager Research at Morningstar Canada.

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