Key Morningstar Metrics for iShares Core MSCI EAFE IMI ETF
- Morningstar Medalist Rating: Gold
- Morningstar Rating: ★★★★
- Morningstar Category: International Equity
- MER: 0.22%
iShares Core MSCI EAFE XEF funds provide market-cap-weighted portfolios of nearly all stocks in the developed international market outside North America. Their category-representative portfolios and low turnover make them compelling options.
The funds track the MSCI EAFE Investable Market Index, which targets nearly all stocks from 21 overseas developed markets, encompassing 99% of the investable market. The index weights its holdings by market capitalization. Market cap weighting is an efficient way to size holdings because it harnesses the market’s consensus opinion of each stock’s relative value. Stocks that perform well take up a larger share of the portfolio, while companies that may be struggling will have less importance.
Diversification is a strength of this strategy. The index usually holds around 2,600 names, with its 10 largest positions typically accounting for around 11% of the portfolio. The strategy is not as broad as other index-tracking funds that include the emerging markets segment. But the funds still cover a lot of ground and reasonably represent the opportunity set available to active managers.
Emerging-market stocks are a small part of the foreign market that this strategy misses. While they usually constitute less than 10% of competing portfolios, these funds are not positioned to reap any rewards should they perform well. However, their omission has been a buoy to the funds’ performance, since emerging-market stocks have struggled in recent years.
This strategy is shared among several exchange-traded funds and mutual funds. Most of them charge low fees that rank in their categories’ cheapest quartiles. Fees directly detract from total return, so low-cost funds and share classes should perform better and better represent the index than those that charge more.
iShares Core MSCI EAFE IMI ETF: Performance Highlights
The MSCI EAFE Investable Market Index underperformed the Morningstar Global Markets ex-US Index by 89 basis points annualized over the trailing 10 years through September 2025. However, most share classes were in the top halfs of their respective categories.
Fees also affect the performance of funds that track this index. Funds with higher fees tend to underperform similar funds with lower fees and track their index better. The MSCI EAFE Investable Market Index was slightly more volatile than the Morningstar Global Markets ex-US Index, and its risk-adjusted performance was slightly lower.
Differences in country weightings can influence short-term performance. For example, the index’s hefty allocation to Japanese stocks hurt its total return in 2021 and 2022, while its lack of emerging market exposure helped.
Most of the variations in performance of these funds stem from the way they treated currency exposure. Some funds tracking this index hedge away all or some of the risk from currency fluctuations. Hedging isn’t free, though, and the advantages and disadvantages of currency hedging come in waves. The impact of foreign-exchange rates on total return tends to wash out over the long run.
