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Investing internationally can provide a dizzying number of options, even when only looking at developed markets. Exchange-traded funds focusing on international developed markets can be an easy way to geographically diversify a portfolio.
For investors trying to decide which international stock ETFs to invest in, we screened ETFs in the international equity fund category to find those with Morningstar Medalist Ratings of Gold, Silver, and Bronze (meaning Morningstar analysts expect them to outperform relative to each ETF’s Morningstar Category index or category median over the long term). These ETFs invest in the stocks in developed markets around the world, excluding the US and sometimes Canada.
All nine of the ETFs are index funds that track variations of one of two indexes, the MSCI EAFE Index and the Vanguard FTSE Developed Markets Ex-US Index. These two indexes provide exposure to stock markets of developed countries outside the US.
The major difference between them is that the Vanguard index invests in three additional countries beyond the EAFE index: Canada, South Korea, and Poland. This is especially important for Canadian investors looking for geographic diversity, as this index will partially overlap with their domestic stock holdings. For example, the $498 million Vanguard FTSE Dev All Cap ex US ETF VDU has roughly 10% of its assets in Canadian stocks. The Vanguard FTSE Developed All Cap ex US Index also invests in small caps, while the MSCI EAFE Index does not.
For this story, we highlight the nine best global stock ETFs for Canadian investors as evaluated by Morningstar analysts:
BMO MSCI EAFE ETF ZEA iShares MSCI EAFE ETF (CAD-Hedged) XIN BMO MSCI EAFE Hedged to CAD ETF ZDM iShares Core MSCI EAFE IMI ETF (CAD-Hedged) XFH iShares Core MSCI EAFE IMI ETF XEF iShares MSCI Minimum Volatility EAFE ETF XMI iShares ESG Aware MSCI EAFE ETF XSEA Vanguard FTSE Developed All Cap ex US ETF VDU Vanguard FTSE Developed All Cap ex North America ETF VIU
Screening for the Best Canadian International Stock ETFs
We screened for ETFs with Gold, Silver, or Bronze Medalist Ratings that are 100% assigned by Morningstar analysts (rather than indirectly or quantitatively assigned).
Here’s a closer look at our picks. A table with their recent performance is at the end of this article.
BMO MSCI EAFE ETF
Ticker: ZEA Morningstar Medalist Rating: Silver Morningstar Rating: 4 Stars
iShares MSCI EAFE ETF (CAD-Hedged)
Ticker: XIN Morningstar Medalist Rating: Bronze Morningstar Rating: 4 Stars
BMO MSCI EAFE Hedged to CAD ETF
Ticker: ZDM Morningstar Medalist Rating: Silver Morningstar Rating: 4 Stars
The $9.1 billion BMO MSCI EAFE ETF tracks the MSCI EAFE Index, which invests in large- and mid-cap stocks across 21 developed markets. The $1.4 billion iShares MSCI EAFE ETF (CAD-Hedged) and the $1 billion BMO MSCI EAFE Hedged to CAD ETF follow currency-hedged versions of the same index. Currency hedging is a technique that uses derivatives to cancel out the effect of exchange-rate fluctuations on stock returns.
“The advantages and disadvantages of currency hedging come in waves,” says Brendan McCann, associate manager research analyst at Morningstar. “The impact of foreign-exchange rates on total return tends to wash out over the long run.”
The two BMO funds carry 0.22% manager expense ratios, while the iShares ETF carries one of 0.49%. The BMO currency-hedged ETF’s annualized return over the past 15 years has been 7.46% compared with 7.23% for the iShares fund.
iShares Core MSCI EAFE IMI ETF (CAD-Hedged)
Ticker: XFH Morningstar Medalist Rating: Silver Morningstar Rating: 4 Stars
iShares Core MSCI EAFE IMI ETF
Ticker: XEF Morningstar Medalist Rating: Silver Morningstar Rating: 4 Stars
The $11 billion iShares Core MSCI EAFE IMI ETF tracks the MSCI EAFE Investable Market Index, which expands the number of companies the ETF invests in from the 21 countries in the EAFE Index.
“The fund holds over 2,500 names, with the 10 largest positions accounting for under 15% of assets,” says McCann. “By comparison, the narrower MSCI EAFE Index holds close to 700 stocks and excludes the small-cap segment.”
The $1.6 billion iShares Core MSCI EAFE IMI CAD-Hedged ETF tracks a currency-hedged version of the same index.
Both funds carry 0.22% manager expense ratios.
iShares MSCI Minimum Volatility EAFE ETF
Ticker: XMI Morningstar Medalist Rating: Silver Morningstar Rating: 3 Stars
The $134 million iShares MSCI Minimum Volatility EAFE ETF follows an index that uses a mathematical model to attempt to construct a portfolio of stocks from the MSCI EAFE Index within certain constraints. These constraints stop it from moving too far from the basic index by, for example, limiting how much individual stock and sector weightings can differ from the broader index.
“So far, the index has delivered on its goals. Its returns were about 25% less volatile than the MSCI EAFE Index over the 10 years through April 2024,” says Ryan Jackson, senior analyst, passive strategies, for Morningstar. “That translated into solid risk-adjusted performance.”
iShares ESG Aware MSCI EAFE ETF
Ticker: XSEA Morningstar Medalist Rating: Silver Morningstar Rating: 3 Stars
This $224 million fund tracks the MSCI EAFE Extended ESG Focus Index, which invests in large- and mid-cap stocks from the same 21 countries as the MSCI EAFE Index, but with screens to invest more heavily in firms with positive environmental, social, and governance characteristics.
“The index aims to keep the expected tracking error to the MSCI EAFE Index within 0.50% to minimize the active risk associated with these ESG screens,” says Zachary Evens, manager research analyst for Morningstar. “This effectively tilts the portfolio toward ESG factors without making large bets against the MSCI EAFE Index that may not be compensated. This fund’s performance should closely mirror that index as a result.”
The index uses a mathematical model to manage this balancing act and generally holds a portfolio of a little less than 400 stocks. That is fewer stocks than the normal EAFE Index, but there is significant overlap between the two.
Vanguard FTSE Developed Markets All Cap ex US ETF
Ticker: VDU Morningstar Medalist Rating: Silver Morningstar Rating: 3 Stars
Vanguard FTSE Developed Markets All Cap ex North America ETF
Ticker: VIU Morningstar Medalist Rating: Silver Morningstar Rating: 3 Stars
The last two funds both track versions of the Vanguard All Cap ex US Index. This index is broader than the MSCI EAFE Index, including three more countries as well as small-cap stocks. However, these differences are unlikely to result in major differences in long-term performance compared with the MSCI EAFE Index.
The primary thing that may be of note to Canadian investors is that the $5.5 billion Vanguard FTSE Developed Markets All Cap ex North America ETF excludes Canada as well as the US from the index, meaning that it may be better for investors seeking purely international exposure.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
