A notable transition is underway in global investment flows. Market participants are increasingly looking beyond American shores, with capital migrating toward equities in Europe and Asia. While US indices post modest gains, international markets are experiencing a powerful rally. At the forefront of this movement is the iShares MSCI EAFE ETF (EFA), which is attracting substantial new investment. This trend prompts a closer examination of its fundamental drivers.
Valuation Disparity Fuels Performance Gap
The compelling divergence in performance is clearly illustrated by the data. By the end of October, the MSCI EAFE Index had advanced by 25.1%, significantly outpacing the S&P 500’s 14.8% return. Market experts attribute this performance gap largely to the more attractive valuations found in international markets. US equities are often considered expensive, trading at a price-to-earnings (P/E) ratio of 28, while the EAFE Index maintains a more moderate P/E of 17.
This valuation advantage is catalyzing a surge in demand for international diversification. A remarkable $35.4 billion flowed into international equity ETFs in October 2025 alone. Investors appear to be recognizing that a concentrated focus on US markets may be a strategic disadvantage in the current climate.
A Deep Dive into the iShares MSCI EAFE ETF (EFA)
This ETF offers exposure to a basket of 695 securities from developed markets outside of North America. Its structure emphasizes diversification, with the top ten holdings representing just 12.68% of the total portfolio, thereby minimizing single-stock risk.
The fund’s leading positions are comprised of established European firms:
– ASML Holding (2.10%)
– SAP (1.36%)
– AstraZeneca (1.27%)
– Nestlé (1.24%)
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Geographically, the portfolio maintains significant weightings in Japan, the United Kingdom, and France. From a sector perspective, financials (24.01%) and industrial companies (19.27%) hold the largest allocations, reflecting the core economic composition of European markets.
Cost-Effective Access to Robust Returns
The fund has demonstrated strong performance, climbing 27.24% since the start of the year. Recent data confirms this positive momentum, with an additional gain of 1.20% recorded in October. With assets under management of $67.36 billion and a narrow bid-ask spread of 0.01%, it ranks among the most liquid international ETFs available.
The product offers a compelling value proposition: for a management fee of 0.32%, investors gain access to a broadly diversified portfolio of developed international markets. While competing products like the iShares Core MSCI EAFE ETF and Vanguard’s FTSE Developed Markets ETF provide similar market exposure, EFA remains the established, dominant player in this segment.
Assessing the Longevity of the Trend
The sustained outperformance of international equities raises a critical question: is this a temporary phenomenon or the beginning of a longer-term strategic shift? The confluence of attractive valuations, stable economic growth in Europe, and persistent capital inflows suggests a more enduring change may be underway. For portfolios heavily weighted toward US assets, the era of intentional international diversification may have definitively arrived.
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