Exchange-traded funds in the developed market can assist investors in getting relatively low-cost, broad diversification, thanks to accessibility to hundreds or even thousands of individual holdings in the most advanced economies in the world. We review the five biggest ETFs for developed markets by assets under management.
A developed market is part of an extremely productive, industrialized nation with well-established law and order. Outside of that, the United States developed markets comprise Japan and Canada, Japan United Kingdom, Canada, and Australia. To differentiate ETFs with developed markets from the basic domestic ETFs and other specific areas, this list of ETFs includes those with a minimum of 5% coverage to at least two developed economies, with the exception of those in the United States.
Vanguard FTSE Developed Markets ETF (VEA)
It was introduced in 2007, this index calculates the rate of return on investments made in stocks issued by companies in Canada and the major markets of Europe and the Pacific region. European equities constitute more than half (53%) of the fund's overall portfolio. Previously, the Vanguard FTSE Developed Markets ETF did not include Canadian equities in its portfolio; nevertheless, the fund modified its investment guidelines to consider significant developments in North America. The cost ratio for the fund that is managed passively is 0.05%.
IShares MSCI EAFE ETF (EFA)
Since its launch in 2001, it has consistently ranked either first or very close to first in the market for foreign ETFs. MSCI EAFE Index is the most extensively quoted international equity index in the United States. This index follows the stock market performance of companies based in Europe, Asia, Australia, and the Far East. The fund invests around 23% of its total assets in equity securities issued by Japanese companies, approximately 14% in securities issued by the United Kingdom, and approximately 11% in securities issued by France. The contributions from Switzerland, Australia, and Germany each account for more than 5% of the total assets in the fund.
IShares Core MSCI EAFE ETF (IEFA)
It was introduced in 2012, and its goal is to replicate MSCI EAFE Investable Market Index (IMI) performance, which is comparable to MSCI EAFE Index but includes a wider range of countries and markets. In addition to the representation provided by mid-caps and large-caps in MSCI EAFE Index, the index also provides representation for small-capitalization companies. The top exposure of this fund appears to be comparable to that of the iShares MSCI EAFE ETF. Approximately 23% of the fund's assets are invested in Japan, and approximately 14% are invested in equities in the United Kingdom. With an expense ratio of 0.07%, it is priced similarly to the Vanguard FTSE Developed Markets ETF in terms of its level of competition.
Schwab International Equity ETF (SCHF)
It has the same goal as the Vanguard FTSE Developed Markets ETF, which is to replicate the performance of FTSE Developed ex-US Index. Japan equities make up around 21% of its portfolio, while those in the United Kingdom account for approximately 12% of its total holdings. The fund's holdings include more than 5% of equity investments from the following countries: France, Germany, Switzerland, Canada, and Australia. The fund's cost ratio, launched in 2009 and has been operating since, is 0.06%.
IShares MSCI EAFE Small-Cap ETF (SCZ)
It was established in 2007 to replicate the performance of MSCI EAFE Small Cap Index. This index exposes investors to the smallest publicly traded firms in Europe, Australia, Asia, and the Far East. In the same way, as with the other iShares ETFs on this list, the proportion of the fund's assets that are invested in Japanese stocks is the greatest (about 27%), while the proportion of assets invested in British stocks is the second-highest (17%). More than five percent of the fund's total assets are invested in the equity markets of Australia, Germany, and Sweden, respectively. With an expense ratio of 0.39%, this fund's cost ratio is the highest on this list.
