3 International (EAFE) ETFs for Bull and Bear Markets (EFAV, QEFA)
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Within the international category of exchange-traded funds (ETFs), investors can limit exposure to four specific regions that focus on Europe, Australia and Southeast Asia (EAFE). Generally speaking, these types of funds can be volatile, due to the performance of equity markets as well as exchange rates. There are, however, a handful of ETFs that are managed to limit the downside volatility of bear markets while participating in the price appreciation that takes place during bull markets. The following are three funds structured for both types of markets.
iShares MSCI EAFE Minimum Volatility ETF
With $6.46 billion in assets under management (AUM), the iShares MSCI EAFE Minimum Volatility ETF (NYSEARCA: EFAV) is the largest ETF in this category. To minimize volatility, the fund is structured with dividend-paying companies and diverse holdings in defensive sectors. For example, the allocation to technology was 20% that of industrials, as of April 16, 2016.
Japan leads the country allocation with 28.56%, followed by the United Kingdom at 23.79% and Switzerland with 10.48%. The largest sector allocations are financials at 21.72%, consumer non-cyclicals with 16.13% and health care at 15.94%. The largest positions in the fund are Swiss Re AG (OTC: SSREY) with 1.51%, Nestle S.A. (OTC: NSRGY) at 1.46%, and Nippon Telegraph and Telephone Corporation (NYSE: NTT) with 1.43%.
The iShares MSCI EAFE Minimum Volatility ETF has a price-to-earnings ratio (P/E) of 18.36 and a price-to-book ratio (P/B) of 1.95, and it pays a distribution yield of 2.38%. The fund has a three-year beta of 0.69, representing volatility 31% lower than the broad market. The three-year annualized return is 6.73%.
SPDR MSCI EAFE Quality Mix ETF
With a weighting system based on value, low beta versus the broad market and fundamental quality, the SPDR MSCI EAFE Quality Mix ETF (NYSEARCA: QEFA) takes the steps necessary to protect share prices in bear markets and capture gains in bull markets. The screening process for the fund, like the other ETFs in this group, underweights technology stocks while favoring sectors that exhibit lower levels of volatility and pay higher dividends.
The largest country holdings are the U.K. with 24.93%, Japan at 21.24% and Switzerland with 12.43%. In its sector allocations, fund favors financials at 20.84%, consumer non-cyclicals with 15.94% and health care at 14.52%. The three largest holdings are Swiss firms: Nestle S.A. at 2.53%, Roche Holding Ltd. (OTC: RHHBY) with 2.31% and Novartis AG (NYSE: NVS) at 2.05%.
The SPDR MSCI EAFE Quality Mix ETF has a P/E of 19.28 and a P/B of 1.82 and pays a dividend of 2.92%. The fund was launched June 4, 2014, and does not have a three-year beta rating. The one-year return is negative 5.4%.
WisdomTree International Hedged Quality Dividend Growth ETF
With a dividend-weighted portfolio that is also currency-hedged for U.S. investors, the WisdomTree International Hedged Quality Dividend Growth ETF (NYSE
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