What EFA actually is

EFA tracks the MSCI EAFE Index: developed-market stocks in Europe, Australasia and the Far East. It excludes the US and Canada, so it is a way to diversify a portfolio that is mostly US.

What is inside

Large companies such as major banks, drugmakers, consumer brands and industrials from countries like Japan, the UK, France, Switzerland, Germany and Australia. Its sector mix is more tilted to financials and industrials than the US market.

Distributions

EFA pays dividends from its holdings, and the yield is often higher than the US market’s, since many foreign companies pay out a larger share of profit. Foreign taxes may be withheld first, and amounts vary with currency changes.

What to keep in mind

  • Currency risk. A stronger dollar lowers returns.
  • Slower earnings growth. Developed foreign markets have lagged the US for years.
  • Foreign taxes. Withholding can reduce income.

Quick take

EFA is a classic international fund for developed markets, useful for diversification and often higher dividends than the US.