What Does EAFE Mean?
Europe, Australasia, Far East (also known as EAFE) refers to economically developed geographic regions outside the United States and Canada.
Formed by Morgan Stanley Capital International (MSCI), EAFE is a broad market, cap-weighted index that represents equity market performance in the developed world outside of North America.
In North America, a comparable indicator would be the Dow Jones Industrial Average.
What Is Included in EAFE?
Twenty-one other MSCI stock indices comprise the EAFE index. The ten largest stocks account for roughly 15% of its total value. More than half of the securities comprising the EAFE are in the financial, consumer, and industrial sectors.
European markets (not including the UK markets) account for roughly 50% of the index, followed by:
- UK markets (19%)
- Japanese markets (23%), and
- Asia-Pacific markets (8%).
Why Is the EAFE Index Important?
The MSCI-EAFE index is often used to compare the performance of American markets with the rest of the developed world. Investors interested in these regions can purchase shares of the iShares MSCI EAFE Index fund (NYSE: EFA), an exchange-traded fund that tracks the performance of the MSCI EAFE Index.