The 2015 through 2024 stretch was a decade of woe for international stocks. For those keeping score at home, the MSCI EAFE Index, a widely followed gauge of developed market stocks outside the U.S., returned 66.9% over that span. Sure, this is better than a loss, but that performance pales in comparison to the 239.9% gained by the S&P 500 over the same period.
Fortunately for investors who came into 2025 holding international stocks or those considering entering that arena, market leadership can and does change. Just look at the iShares Core MSCI EAFE ETF (IEFA +0.51%). This fund is on a scintillating run this year, returning 27.6% as of Oct. 17, leaving the S&P 500 and its 14.4% gain in the dust.
Reasons for overseas optimism abound
With international stocks in rally mode this year, late-arriving investors may be pondering if they've missed out on the "easy money" with IEFA. Investing comes with no guarantees, but there are reasons to believe there's more fuel in this fund's tank.
There's a big, underappreciated reason IEFA's stock could keep soaring. Image source: Getty Images.
Notably, many investors in the U.S. are underallocated to international stocks. Maybe it's home country bias or the result of ongoing enthusiasm for the Magnificent Seven or another reason, but the fact is market participants in the wealthiest country in the world and the one with the largest economy aren't as engaged with international stocks as they are with domestic fare.
Entering this year, the average U.S. investor's equity portfolio featured a 25% weight to international stocks or just a third of their exposure to domestic equities. Look at IEFA this way: The exchange traded fund (ETF) is resurgent at a time when Americans are underallocated to international equities. It's possible that if investors in this country change their perspective, IEFA could rally some more.
NYSEMKT: IEFA
Key Data Points
Speaking of markets that are underowned, Japan fits that bill. It's a curious phenomenon when considering Japanese stocks are inexpensive and because the country is driving corporate governance changes, including compelling companies there to boost buybacks and dividends. If more global asset allocators awaken to the Japan story as some famous investors already have, that could be a boon for IEFA because the fund devotes 24% of its roster to Japanese stocks.
FOMO, weak dollar could also boost IEFA
Only time will tell if investors in the U.S. earnestly embrace international stocks and ETFs such as IEFA, but one thing bodes well for those prospects: investors' innate fear of missing out (FOMO). This is a real phenomenon, and the hotter an asset gets, the more palpable that fear can become.
Not a believer in FOMO or simply want a more fundamental reason why IEFA can continue surging this month and beyond? Don't worry. It exists in the form of the weak dollar. The greenback is already mired in a deep slump and with the Federal Reserve poised to lower interest rates, perhaps later this month, a couple more times before year-end, the likelihood of a rally is diminishing.
That's important to IEFA investors because a sliding dollar can boost the returns of unhedged international equity exposures of which the iShares ETF is one. Students of market history know that a strong dollar is a headwind for ex-U.S. stocks. Fortunately, that's not the scenario IEFA investors find today.