EFA More Attractive Than SPY

In almost every attribute, iShares MSCI EAFE Index ETF (EFA) is much more attractive than the S&P 500 SPDR Trust, Series 1 ETF (SPY). Its P/E is lower (11.5 vs. 12.9) and its Price/Cash Flow (P/CF) of 6.4 is even more reasonable than SPY’s 9.6. For the yield-hungry investor, EFA’s 2.67% yield is also juicier than SPY’s 2.02%.

Some might argue that America has tougher (or different) accounting rules than the rest of developed world so you can’t really compare apples to oranges. However, if you look at the top line (i.e. Price/Sale), EFA’s 0.9 is also much better than SPY’s 1.3. Sales (Revenue) can’t lie/cook (in most cases).

As a matter of fact, SPY’s numbers ( P/E, P/CF and P/S, etc) look similar to iShares MSCI Emerging Markets Index ETF's (EEM), though it definitely doesn’t have the growth rate EEM countries have.

Note: All data are from Yahoo websites as of 4/25/08:

• EFA
• SPY
• EEM

Disclosure: Author has a long position in EFA

Comments

[richjoy:]

Thank you...well laid out.
I'll consider this to be "news I can use".

2008 Apr 27 09:39 AM

[dr.stew:]

I found the article interesting, but short sighted. Looking at charts of the three over the past year or two, and also at the total return for the past year and 3 years, you will see that EEM would have been the place to be. You might add to these three: ADRE. The best of the rest.

2008 Apr 27 06:25 PM

[AAI:]

The "lower valuation" of Europe vs US may be due to its different sector weightings, such as higher Energy weighting.

2008 Apr 27 08:39 PM

[rudi:]

The market is always right! Maybe market expects the US economy to be more competitive and growing. I wouldn't base an argument on this!

Relying on the theory of efficient markets, I would chose the product with less fees, that is SPY.

best regards
Rudi

2008 Apr 27 09:52 PM

[LarC:]

Take a look at the weekly 5-year and the daily one year charts. EEM & ADRE are straight up and above the 1-yr 200 MA. The others are coming off of dips and below the 1-yr 200 MA. Hard to pick and choose but looks like EEM or ADRE might move up faster. Or not.

2008 Apr 28 10:50 AM