Comparing International ETFs (EFA) vs. Domestic (SPY)

Focus: TECHNICAL

Jackie Ann Patterson Image Jackie Ann Patterson Author, Truth About ETF Rotation

With all blurred lines of large US companies reaching globally, one might think the performance of SPY and EFA would be similar.  However, SPY is up 8.5% year-to-date while EFA has gained 14.4% in the same time period, asserts Jackie Ann Patterson of  truthaboutetfrotation.com.

In my ETF Rotation Strategy, US stock index funds are pitted against international stock funds and bond funds. Cash is always the fallback position if nothing appears to be making money. In this article, I’d like to compare the domestic index fund SPDR S&P 500 ETF (SPY) with the international fund iShares MSCI EAFE ETF (EFA).

Among the large companies in SPY and EFA, the national boundaries are somewhat blurred because of the global reach of their businesses. For example, according to Statista, 64% of Apple (AAPL) revenue was generated outside the US, yet AAPL is the #1 holding of SPY.  Over the last decade, the S&P 500 companies have gotten 43-47% of their revenue from international sales.

A few companies in the S&P 500 appear to be foreign companies with headquarters in Ireland and London. However, they didn’t start out there.  One example is Seagate (STX) which was founded in the US, went public in the US, got taken private, then re-emerged as a public company headquartered in Ireland. 

Another interesting case of corporate migration is Anheuser-Busch (BUD).   When it was headquartered in the US, it was a member of SPY.  Now that it has merged with Belgian company InBev, BUD is part of EFA. Likewise, Prudential was founded in New Jersey but now appears in EFA with headquarters in Europe.

Looking more closely at EFA reveals many of its top 50 holdings are familiar to this US writer. Nestle is the largest holding at 1.98%.  EFA holds 955 company stocks so none of the holdings are very large.  Even though Toyota, Sony, BP, Shell, and Bayer are household names in the US, they are multi-national corporations headquartered elsewhere.

With all these blurred lines, one might think the performance of SPY and EFA would be similar.  However, SPY is up 8.5% year-to-date while EFA has gained 14.4% in the same time period.

Read more about Jackie Ann Patterson’s ETF Rotation strategy here...