iShares’ Core ETF Has Been Beating the S&P 500 for 3 Years And Nobody’s Talking About It

International developed markets have quietly staged a comeback. Over the trailing 12 months through early March 2026, the iShares Core MSCI EAFE ETF (IEFA) returned +22.88%, outpacing the S&P 500’s +17.69% over the same stretch. For a fund that spent years dismissed as dead weight in a US-dominated bull market, that gap is worth paying attention to.

What IEFA Actually Is

IEFA tracks the MSCI EAFE IMI Index, giving investors broad exposure to large-, mid-, and small-cap equities across developed markets outside the US and Canada. With $172.4 billion in assets and an expense ratio of 0.07%, it is one of the most cost-efficient ways to own international developed market stocks.

Geographically, the fund is anchored in Japan (23.89%), the United Kingdom (14.53%), France (9.64%), Switzerland (8.88%), and Germany (8.87%). On the sector side, Financials (23.43%) and Industrials (19.67%) dominate, which is a meaningfully different profile from the US market’s technology-heavy composition. Top holdings include ASML, AstraZeneca, Roche, HSBC, and Novartis, spanning semiconductors, pharma, and global banking.

The fund’s return engine is straightforward: it captures the earnings growth and dividend income of roughly 3,000 companies across Europe, Japan, and the Pacific. The 2.37% dividend yield adds a meaningful income component, and dividends have grown steadily, with the 2025 total payout of $3.18 per share well above the $2.25 paid in 2023.

The Real Tradeoffs

Three risks matter here. First, currency exposure is unhedged, so a strengthening US dollar directly compresses returns for American investors regardless of how underlying businesses perform. Second, the fund’s underweight to technology relative to the S&P 500 has historically been a drag during periods when US mega-cap tech leads. Third, over a full five-year window, IEFA’s +52.08% return trails the S&P 500’s +75.69% by a wide margin, a reminder that recent momentum does not erase a longer structural gap.

IEFA belongs in a portfolio as a diversification sleeve, typically 10 to 20% of equity exposure, for investors who want genuine geographic breadth and a dividend yield that US index funds cannot match, but anyone expecting it to consistently outpace the S&P 500 will likely be disappointed over a full market cycle.