3 ETF strategies to play EAFE

EAFE stocks may get a boost from improving market conditions in Europe, Japan or other developed countries. Pat explains some of the ways that investors can gain exposure to them using exchange traded funds.

One of the great appeals of Canada’s evolving ETF landscape is the choice it now offers investors seeking different strategies for gaining access to international equity markets. It’s no longer just about market cap exposure, but, increasingly, also about factor-based exposures that offer the potential for various outcomes such as reduced volatility or outperformance.

Take EAFE for example. The multi-region market consisting mostly of European, Australasia and Far East stocks may provide healthy returns going forward based on BlackRock’s positive outlook for Europe and Japan.

So how might Canadian investors gain access to the market – should they choose exchange traded funds? One option to consider is to simply “buy the market” using a low cost ETF such as the iShares Core MSCI EAFE IMI Index ETF (XEF). This fund is designed to replicate the performance of its underlying index and may be considered a long-term core holding. In April, this fund had the third highest inflows of all iShares ETFs trading in Canada, according to BlackRock’s Follow the Flow data.

This approach may not be for everyone, including those who worry about the potential for heightened volatility in places like Europe where geopolitical risks such as Brexit and government elections are ongoing concerns. In this case, minimum volatility ETFs may be an alternative worth considering. The underlying index for the iShares Edge MSCI Min Vol EAFE Index ETF (XMI) has historically lost less during market declines, while still capturing meaningful gains during upswings, according to Morningstar data.

Other investors more interested in seeking enhanced returns in EAFE, rather than potentially reducing volatility, may want to consider iShares Edge Multifactor EAFE Index ETF (XFI). This fund tracks an index designed to outperform the market benchmark over the long term while taking similar risk by focusing on four historic drivers of return: quality, value, low size and momentum.

Canadian dollar-hedged versions of these three ETFs are also available, giving investors the ability to express their currency views regardless of whether the primary objective is buying the broad market, seeking reduced volatility or outperformance.

And this isn’t just true for investors seeking exposure to EAFE. All three of these strategies are available to those seeking exposure to other global markets including Canada, the U.S., and emerging markets.    So there’s choice to be had in Canada’s ETF market. It’s just up to investors to decide which strategy best suits their needs.

Pat Chiefalo is a managing director and head of iShares Canadian Product for BlackRock Canada. He is a regular contributor to The Blog in Canada.

iShares® ETFs are managed by BlackRock Asset Management Canada Limited. Commissions, trailing commissions, management fees and expenses all may be associated with investing in iShares ETFs. Please read the relevant prospectus before investing. The funds are not guaranteed, their values change frequently and past performance may not be repeated. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader.

MSCI® and EAFE® are trademarks of MSCI, Inc. (“MSCI”). XEF, XMI and XFI are permitted to use the MSCI mark and, as applicable, the EAFE mark pursuant to a license agreement between MSCI and BlackRock Institutional Trust Company, N.A., relating to, among other things, the license granted to BlackRock Institutional Trust Company, N.A. to use the indices. BlackRock Institutional Trust Company, N.A. has sublicensed the use of these trademarks to BlackRock Asset Management Canada Limited. XEF, XMI and XFI are not sponsored, endorsed, sold or promoted by MSCI and MSCI makes no representation, condition or warranty regarding the advisability of investing in XEF, XMI and XFI.

© 2017 BlackRock Asset Management Canada Limited. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. Used with permission. 156347