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The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada. It is maintained by MSCI Barra, a provider of investment decision support tools; the EAFE acronym stands for Europe, Australasia and Far East.
The index is market-capitalization weighted (meaning that the weight of securities is based on their respective market capitalizations). It first ranks each stock in the investable universe from largest to smallest by market capitalization. The largest 70% will compose the MSCI EAFE Large Cap (new index), the largest 85% will compose the MSCI EAFE Standard, and the largest 99% will compose the MSCI Investable Market index (“IMI”). The 71st to 85th percentiles represent the MSCI EAFE Mid Cap, and the 85th to 99th percentiles represent the MSCI EAFE Small Cap.
The index includes a selection of stocks from 21 developed markets, but excludes those from the U.S. and Canada. Those 21 markets are: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, Israel, Australia, New Zealand, Singapore, Hong Kong, and Japan. The index has been calculated since 31 December 1969, making it the oldest truly international stock index. It is probably the most common benchmark for foreign stock funds in the U.S.
Many managers of North American international stock funds use the EAFE as a performance benchmark. For example, Thrift Savings Plan's international fund (I Fund) tracks the net version of this index.
The iShares MSCI EAFE Index fund (NYSE Arca: EFA) is based on the standard index. EFA is the fourth-largest ETF in the world. They also have iShares MSCI EAFE Small-Cap (NYSE Arca: SCZ) which has just the small caps. iShares Core MSCI EAFE fund (NYSE Arca: IEFA) uses the "IMI" version of the index. This fund is similar to EFA but its portfolio represents nearly all of each country's investable market capitalization, while EFA only covers the top 85%, which excludes most small-cap stocks. The TIAA International Equity Index Fund is also based on the EAFE index. Vanguard has the mutual fund Vanguard Developed Markets Index Inv (Mutual fund: VDMIX) and the Vanguard FTSE Developed Markets ETF (NYSE Arca: VEA); these funds previously used the MSCI EAFE, but now use the FTSE Developed ex North America Index, which is very similar but includes South Korea.