What is EFAS? (Pros, Cons, and Strategies)

Investing in global dividend opportunities is an intriguing alternative to domestic market investments, especially for those looking to diversify their portfolios. The Global X MSCI SuperDividend® EAFE ETF, commonly known as EFAS, offers exposure to high dividend-paying companies in developed markets outside North America. In this blog post, we'll explore what EFAS is, its advantages and disadvantages, and some investment strategies you can consider.

What is EFAS?

EFAS stands for the Global X MSCI SuperDividend® EAFE ETF. This ETF aims to provide investors with a reliable income by focusing on high-yielding dividend stocks from developed markets, excluding the U.S. and Canada.

EFAS tracks the MSCI EAFE Top 50 Dividend Index. This index consists of the 50 highest dividend-yielding equities within the MSCI EAFE Index, which includes stocks from Europe, Australasia, and the Far East. The focus on developed markets outside North America allows EFAS to offer a diversified dividend yield from some of the most stable economies in the world.

Key Features of EFAS

• High Dividend Yield Focus: The index selects 50 stocks with the highest dividend yields.
• Geographical Diversification: Includes companies from developed markets in Europe, Australasia, and the Far East.
• Quarterly Distributions: EFAS pays out dividends on a quarterly basis, making it a reliable source of periodic income.

The index is rebalanced annually, ensuring that it consistently focuses on the top dividend-yielding stocks while maintaining geographical exposure in developed markets outside North America.

EFAS Composition

EFAS includes a mix of well-known companies from various sectors like financials, utilities, and consumer staples. Some prominent names include British American Tobacco (BTI), Novartis (NVS), and Siemens (SIEGY). The ETF seeks to balance between industry sectors and regional exposure to mitigate risk while providing consistent income.

Pros of EFAS

High Dividend Yield

EFAS aims for a high dividend yield by selecting the top 50 dividend-paying stocks in the MSCI EAFE Index. This focus provides an attractive income stream for investors seeking higher yields compared to U.S.-focused dividend ETFs.

Geographical Diversification

By investing in developed markets outside North America, EFAS offers geographic diversification. This reduces the risk associated with economic downturns in a single region and exposes investors to growth opportunities in multiple developed economies.

Regular Income

EFAS pays dividends on a quarterly basis, which is particularly beneficial for investors seeking regular income. This can be an attractive feature for retirees or those looking to supplement their income streams.

Cons of EFAS

Currency Risk

Investing in international markets introduces currency risk. Fluctuations in exchange rates can impact the value of dividends and the ETF's overall performance. As a result, EFAS might experience more volatility compared to a U.S.-focused dividend ETF.

Exposure to Foreign Market Risks

While geographical diversification helps spread risk, it also exposes investors to economic and political risks inherent in foreign markets. Factors such as regulatory changes, political instability, and economic slowdown in any of the included regions can affect the ETF's performance.

High Expense Ratio

EFAS generally has a higher expense ratio compared to some domestic dividend ETFs. The expense ratio is the annual fee paid to the management company, which can reduce overall returns over time.

EFAS Investment Strategies

Diversification Strategy

EFAS can be an excellent addition to a diversified portfolio. By combining EFAS with U.S.-focused ETFs, investors can achieve greater geographical diversification, which can help stabilize returns during market downturns in any one region.

Income-focused Strategy

For investors primarily seeking income, EFAS provides a robust option due to its high dividend yield and quarterly payouts. It can be particularly useful for those in or nearing retirement who want a steady income stream.

Long-term Investment Strategy

Despite the higher expense ratio and risks associated with foreign markets, EFAS can be a valuable long-term investment. Its focus on high dividend-paying stocks coupled with geographical diversification can offer stable income and growth over the long term.

Tactical Allocation

Investors might also consider a tactical allocation approach, increasing exposure to EFAS when global valuations are attractive or when seeking to benefit from specific economic cycles in developed international markets.

Conclusion

EFAS offers an appealing approach to global dividend investing, focusing on high-yield stocks from developed markets outside North America. Its high dividend yield and quarterly payouts make it suitable for income-focused investors, while its geographical diversification adds another layer of portfolio stability. However, potential investors should also consider currency risks, market-specific risks, and the relatively higher expense ratio.

Whether you're a retiree seeking a steady income or an investor looking to diversify your portfolio, EFAS presents a compelling case for long-term investment. By combining it with other strategies and regional exposures, you can create a resilient and diversified investment portfolio.