Why This iShares International Stock ETF Earns a Gold Rating

Key Morningstar Metrics for iShares Core MSCI EAFE ETF IEFA

• Morningstar Medalist Rating
  : Gold
• Process Pillar
  : Above Average
• People Pillar
  : Above Average
• Parent Pillar
  : Above Average

IShares Core MSCI EAFE’s low fee and expansive portfolio make it one of the more appealing international stock funds available.

The fund tracks the MSCI EAFE Investable Market Index. It targets nearly all stocks from 21 overseas developed markets, encompassing 99% of the investable market. The index weights its holdings by market capitalization. Market-cap weighting is an efficient way to size holdings because it harnesses the market’s consensus opinion of each stock’s relative value. Stocks that perform well take up a larger share of the portfolio, while shrinking companies will have less importance.

Diversification is a strength of this strategy. The index usually holds around 2,600 names, with its 10 largest positions typically accounting for less than 15% of the portfolio. The strategy is not as broad as other index-tracking funds that include the emerging-markets segment. But the funds still cover a lot of ground and reasonably represent the developed foreign stock market.

Emerging-market stocks are a small part of the foreign market that this fund misses, however. While they usually constitute less than 10% of competitors’ portfolios, this fund is not positioned to reap the rewards should they perform well. However, their omission has been a buoy to fund performance since emerging-market stocks have struggled in recent years.

iShares Core MSCI EAFE ETF: Performance Highlights

The MSCI EAFE Investable Market Index gained 9.3% annualized over the 10 years through October 2026, a return similar to other prominent foreign-stock indexes. Its exclusion of emerging-market stocks limits its scope relative to broader benchmarks and contributes to short-term return discrepancies, but those differences equated to little over the past decade. It outperformed its more focused sibling, the MSCI EAFE Index, by 4 basis points annualized over the same period. Volatility tends to run slightly cooler for the MSCI EAFE Index than broader international benchmarks, but the difference is minor.

The index’s focus on developed-market stocks drives most risk and return differences compared with broader peers. While those differences have mostly washed out over the long term, that’s not guaranteed to continue. Emerging-market stocks underperformed their developed-market peers by a considerable margin from 2021 through 2023. That stemmed from rising and then high global interest rates, as emerging-market firms tend to be more sensitive to interest rate changes. Forces affecting different sections of the global market will continue to drive relative performance, but this strategy should effectively represent the foreign developed-stock market.