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Portfolio > Alternative Investments > Hedge Funds

EFA Successful in Tracking EAFE: Barclays' Analyst

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LONDON (–Analyzing the performance of the iShares MSCI Index fund, a senior portfolio manager at Barclays Global Investors found that the exchange-traded fund delivered consistent index-like performance.

As the AMEX-listed EFA approaches its second anniversary, analyst J. Lisa Chen writes that EFA has tracked successfully the MSCI EAFE index returning -27.43% compared to the index at -27.52. That’s a cumulative outperformance since inception of 9 basis points, net of 63 basis points of expenses

Kevin Ireland, vice president for the exchange-traded funds division of AMEX, said though he was not familiar with the Barclays study, he was not surprised by the result.

As a vehicle for hedge funds, particularly as it represents a basket of stocks, EFA was ideal for some strategies, said Mr. Ireland. He referred to one fund that wanted to be long on emerging markets but short on EAFE, which represents the industrialized world outside of North America. “EFA is ideal for such a strategy,” he said because, like exchange-traded funds in general, it represents a basket of stocks and for that hedge fund to assemble an equivalent basket itself would be “tough and expensive.”

The MSCI EAFE is an unmanaged, market-value-weighted index designed by Morgan Stanley Capital International Inc. to measure the overall condition of markets in Europe, Australia and the Far East. IShares are distributed by SEI Investments Distribution Co., and Barclays Global Fund Advisors serves as an adviser to iShares.

Even on a day-to-day basis, Ms. Chen wrote in the study for Barclays, the mistracking has been close to zero.

Ms. Chen’s report also observes that there is a “small premium/discount in EFA’s secondary trading activity” versus its net asset value. This, Ms. Chen attributed to a timing difference. NAV is calculated using closing security proves from local markets in Asia/Europe and with foreign exchange rates taken at 4 p.m. London time. During the second half of the New York trading day, then, the fund’s NAV is frozen, yet the trading price continues to fluctuate.

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