What Is Europe, Australasia, Far East (EAFE)?
Europe, Australasia and the Far East (EAFE) refers to the most developed geographical areas of the world outside the United States and Canada. These regions are commonly referred to by the acronym EAFE, and many different exchange-traded funds (ETFs) and mutual funds focus their efforts on investing in companies in these regions.
Understanding Europe, Australasia, Far East (EAFE)
Europe, Australasia, and the Far East represents some of the most productive and profitable regions in the world. Morgan Stanley Capital International (MSCI) created a stock market index known as the MSCI EAFE to capture the performance of large- and mid-capitalization companies in the EAFE region. The MSCI EAFE Index covers approximately 85% of the free float-adjusted market capitalization of each of the countries included in the index. In includes stocks from 21 developed markets outside the U.S. and Canada. The MSCI EAFE is the oldest international stock index, having been calculated since December 21, 1969, and is the most commonly used benchmark for foreign stock funds in the United States.
EAFE Region Constituents
MSCI tracks the equity performance of more than 900 companies across 21 countries in Europe, Australasia and the Far East. As for Europe, the countries included in the index as of May 2016 are: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. Countries from Australasia included in the index are Australia, Hong Kong, Japan, New Zealand and Singapore. The only country from the Middle East represented in the index at this time is Israel. The MSCI EAFE incorporates all the same countries that are represented by MSCI World, minus Canada and the U.S.
As the basis for index-linked and index-tracking ETFs and mutual funds, the EAFE index is the most commonly used index for developed international equity products. Beyond the various funds available to investors based on this index, the Chicago Mercantile Exchange (CME), NYSE Liffe US and the Bclear platform of Liffe are licensed to list futures contracts on the MSCI EAFE Index.
In addition to the MSCI EAFE Index, MSCI has the MSCI EAFE IMI Index and the MSCI EAFE All-Cap Index. The EAFE IMI Index tracks the performance of large-, mid-, and small-capitalization companies. As of 2019, it has 3,260 constituents and covers approximately 99% of the free float-adjusted market capitalization in each country. The MSCI EAFE All-Cap Index tracks large-, mid-, small-, and micro-capitalization companies and has 7,770 constituents.
Over half of the companies in the MSCI EAFE index are involved in the financial, consumer and industrial sectors. Companies within developed countries in the Europe, Australasia and Far East have a large impact on the global financial system. According to reports by MSCI.com issued in 2019, there are over $14.8 trillion in assets that are benchmarked to the MSCI Index family globally as of March 2018. The MSCI EAFE indexes are often used in the financial industry to compare the performance of the United States to the rest of the developed world.