IEFA: Why This Fund Is One of the Best International ETFs

Investors seem to be showing more interest in buying stocks beyond the U.S. market. This doesn't mean that the "U.S. exceptionalism" trend is over, but it does mean that there could be good opportunities for investors who diversify into international stocks.

One of the best international exchange-traded funds (ETFs) is the iShares Core MSCI EAFE ETF (NYSEMKT: IEFA). It offers a diversified mix of stocks from more than 16 countries, with top holdings from Japan (25.2% of the fund), the United Kingdom (13.97%), France (8.9%), Switzerland (8.6%) and Germany (8.2%).

This fund has slightly underperformed the S&P 500 index year to date, but it has an intriguing mix of holdings in its portfolio that could be worth a look for globally minded investors. Let's see why the iShares Core MSCI EAFE ranks among the best global stock ETFs.

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2,632 stocks, 3.30% dividend yield, five years of 8.67% annualized returns

The iShares Core MSCI EAFE ETF offers exposure to 2,632 international stocks. This fund owns large-cap, mid-cap, and small-cap stocks with a focus on developed markets beyond Canada and the U.S. "Developed markets" means this ETF invests in stocks based in countries known for political stability, financial regulations, and prosperous economies -- and hopefully, those countries' companies will deliver good returns for shareholders.

The iShares ETF's top five stock holdings (as of May 29) are semiconductor company ASML Holding (2.46% of the fund), international financial services giant HSBC Holdings (1.26%), and multinational pharmaceutical companies Roche (1.16%), AstraZeneca (1.1%), and Novartis (1.08%).

The fund has earned annualized returns (as of April 30) of 8.67% for the past five years, 15.66% for the past three years, and 26.02% in the past year. It has paid an impressive trailing-12-month dividend yield of 3.30%. And it's a low-cost index fund with an expense ratio of only 0.07%.

Unfortunately, this international fund has underperformed the U.S. S&P 500 for the past five years.

Why buy IEFA if it hasn't beaten the S&P 500?

Some U.S. investors might hesitate to buy stocks in places like Europe and Japan that have tended to have slower-growing economies than America for the past several years. Why not just keep your money in the U.S. and keep buying artificial intelligence (AI) stocks?

But past performance is no guarantee of future results. In case the U.S. stock market goes into a downturn, especially if U.S. tech stocks tumble from their current high valuations, owning international stocks could help your portfolio stay diversified. International stocks can be a counterweight to U.S. stocks during times of volatility.

The iShares Core MSCI EAFE ETF ranks as one of the best international ETFs because of its low fees, broadly diversified holdings, and high dividends. It could be worth adding to your portfolio.

HSBC Holdings is an advertising partner of Motley Fool Money. Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML and AstraZeneca Plc. The Motley Fool recommends HSBC Holdings and Roche Holding AG. The Motley Fool has a disclosure policy.