What is the EAFE Index?

EAFE stands for Europe, Australasia, and the Far East -- a region that is considered the most developed outside of North America. The Morgan Stanley Capital International (MSCI) EAFE index is the most common way to track the performance of stocks in the EAFE markets.

How Does the EAFE Index Work?

The EAFE Index holds nearly 800 non-U.S. securities in Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. It does not include any stocks from Africa or Latin America. Large sector weightings include financials, consumer discretionary, industrials, and energy.

Like all foreign funds, the dollar's fluctuations have an impact on the fund's value. Remember, a weak dollar means that the stocks you hold, which are valued in foreign currencies, will command more dollars when they are sold. A weak dollar is good for dollar-based foreign investors.

Why Does the EAFE Index Matter?

EAFE index funds are one of the most popular ways to invest in the international markets. EAFE index funds span many markets, thereby offering 'one-stop shopping' for investors interesting in getting foreign exposure in developed markets.