Forget US Dominance for Now: EFA Outperforms SPY With 2.34% Gain While S&P Slips

US stocks entered 2026 on the back foot, with the S&P 500 down 1.4% year-to-date through early March. Over that same stretch, developed international equities moved in the other direction. For retirees managing sequence-of-returns risk, that divergence is exactly why geographic diversification exists.

iShares MSCI EAFE ETF (NYSEARCA:EFA) tracks the MSCI EAFE Index, covering large- and mid-cap equities across developed markets in Europe, Australasia, and the Far East, explicitly excluding the US and Canada. The fund has been running since August 2001, carries $77.8 billion in assets, and charges 32 basis points annually. For a fund of this size and history, that cost is competitive.

The top holdings read like a global blue-chip list, including ASML, Roche, AstraZeneca, Novartis, HSBC, Nestle, Toyota, and Siemens. These are cash-generating multinationals with long dividend histories. The fund’s 4% annual portfolio turnover reflects a buy-and-hold approach that keeps trading costs and tax drag low, which matters in taxable retirement accounts.

One structural detail retirees need to understand: EFA is unhedged. Currency movements between the euro, yen, pound, and the US dollar flow directly into returns, adding volatility but also giving EFA the ability to benefit when the dollar weakens.

EFA is up 2.34% year-to-date while SPDR S&P 500 ETF Trust (NYSEARCA:SPY) has slipped 1.4%, a reversal that reflects both dollar weakness and a rotation toward cheaper international valuations.

Over the trailing twelve months, EFA’s 21.82% return has outpaced SPY’s 17.4%, though the honest caveat is that this recent stretch is an exception — over longer horizons, US equities have run considerably further, and EFA earns its place through diversification and income rather than raw growth competition.

EFA pays dividends twice a year, with the 2025 distributions totaling $3.25 for the year — the strongest payout in recent years. At a current yield of 2.29%, EFA trails the 10-year Treasury yield of 4.13%, which means it is not an income replacement for bonds but rather income layered on top of equity growth potential.

The semi-annual schedule — payments typically arrive in June and December — requires retirees to plan cash flow accordingly. Amounts vary year to year based on international earnings cycles and currency movements, so EFA income should be treated as a supplement rather than a fixed income stream.

1. Currency risk amplifies volatility. The unhedged structure means a strengthening dollar can erode returns even when underlying holdings perform well.
2. Long-term US underperformance is a real pattern. Over ten years, EFA returned 138% while SPY returned 239%. That gap reflects a decade of US tech dominance and dollar strength, not a structural flaw in international diversification, but it is a real cost retirees should weigh when sizing their international allocation. Overweighting international at the expense of US exposure has historically cost total return.
3. Dividend variability complicates income planning. Annual payouts have varied, with the 2025 total reaching $3.25, though distributions can fluctuate year to year based on international earnings cycles and currency effects.

Some investors use international ETFs like EFA as part of a diversified retirement portfolio, seeking developed-market exposure, modest income, and a natural hedge against US-specific economic stress. Accepting currency volatility and historically lower long-term returns relative to US equities comes with the territory.