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ETF Specialist

The Value in International Growth

Get higher-quality, more-defensive names in this foreign growth fund.

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Value stocks outperform in the long run. Why then would anyone want to invest in a growth fund? Although high-growth stocks often represent speculative companies with limited earnings history, a broad-growth fund typically offers a portfolio of high-quality companies that can weather bad times better than their peers. Growth stocks generally trade at higher multiples, so paying too much for quality can wipe out the benefits. But when the valuation gap between value and growth stocks is reasonable, as it is now in the MSCI EAFE Index, this quality tilt can offer defensive market exposure. 

Uncertainty abroad may deter investors from leaving the comfort of the United States market. However, global diversification is as important as ever.  iShares MSCI EAFE Growth Index (EFG) invests in companies with the strongest prospects for growth from the MSCI EAFE Index, which includes large- and mid-cap companies based in developed markets in Europe, Asia, and Australia. Because the MSCI EAFE Growth Index covers approximately half of the assets in the MSCI EAFE Index, it does not overweight cutting-edge, high-risk, high-return growth stocks. Rather, its portfolio skews toward high-quality names, such as  Diageo (DEO),  Toyota (TM),  Nestle (NSRGY), and  Roche (RHHBY). EFG is a suitable core holding for investors who have heavy exposure to U.S. and Canada and want to build a global portfolio with a quality tilt.

Alex Bryan has a position in the following securities mentioned above: EFAV. Find out about Morningstar’s editorial policies.