The EAFE Index, or MSCI EAFE Index, is a widely used benchmark for equity markets outside of the United States, representing developed markets in Europe, Australasia, and the Far East. The acronym “EAFE” stands for Europe, Australasia, and Far East. The index is maintained by MSCI Inc. (Morgan Stanley Capital International) and is one of the key indicators for international equity performance.

Key points about the EAFE Index include:

1. **Scope:** The EAFE Index includes stocks from developed countries in Europe, Australasia, and the Far East. It covers a broad range of countries but excludes the United States and emerging markets.

2. **Constituent Countries:** The index comprises stocks from countries such as the United Kingdom, Japan, Germany, France, Australia, Switzerland, and others. The specific countries included can vary based on the criteria set by MSCI.

3. **Market Capitalization-Weighted:** Like many major equity indices, the EAFE Index is market capitalization-weighted. This means that larger companies have a greater impact on the index’s performance.

4. **Industry Representation:** The index includes companies from various industries, providing diversification across sectors. Common sectors represented in the index include financials, industrials, consumer goods, healthcare, and technology.

5. **Performance Benchmark:** The EAFE Index is often used as a benchmark for international equity funds, allowing investors to compare the performance of their portfolios with the broader universe of developed international markets.

6. **Investment Products:** Exchange-traded funds (ETFs) and mutual funds that track international developed markets often use the EAFE Index as a reference. Investors can use these funds to gain exposure to the performance of stocks in Europe, Australasia, and the Far East.

7. **Rebalancing:** The index is periodically rebalanced to ensure that it accurately reflects the market conditions and the changing landscape of global equity markets.

8. **Differences from MSCI World Index:** While the EAFE Index represents developed markets outside of the United States, the MSCI World Index includes both developed and emerging markets. The MSCI World Index provides a broader perspective on global equity markets.

9. **Currency Consideration:** The index is usually reported in both local currency terms and U.S. dollar terms to account for currency fluctuations.

Investors and fund managers use the EAFE Index to assess the performance of international equity portfolios, understand market trends in developed regions, and make investment decisions. The index serves as a valuable tool for benchmarking and evaluating the relative performance of investments in developed international markets.