The biggest companies in the EAFE index are Nestle, Roche, and Novartis- big consumer products and healthcare companies that don’t grow as quickly as tech giants in the US and emerging markets. Image: Oleg Elkov/Shutterstock.com

Lyn Alden

The TSP’s International Fund, or I Fund, tracks the MSCI EAFE index, which includes equities from foreign developed markets mainly in Europe and Japan.

Over the past year, the S&P 500, which is the index that the C Fund tracks, has outperformed the MSCI EAFE index by nearly 13%:


As the chart shows, however, the equal-weight version of the S&P 500 has returned far less than the normal capitalization-weighted S&P 500, and basically the same amount as the MSCI EAFE.

This is because, as I described in recent articles, the S&P 500 is extremely concentrated lately, with the top 5 stocks outperforming most other stocks, and accounting for 20-25% of the entire 500-company index.

So, if it wasn’t for the top few mega-cap companies like Apple, Amazon, Alphabet, Microsoft, Facebook, and a few others in the tech/internet space, U.S. stock market performance and the European/Japanese stock market performance would have been pretty close over the past year. Those trillion-dollar U.S. mega cap companies are mostly what is making up the difference. There aren’t very many big software/tech giants in Japan and Europe to pull up their equity indices like the S&P 500 has.

If we look at developed international markets vs emerging markets, emerging markets are also outperforming developed international markets over the past year by a sizable margin:

This is ironically because emerging markets do have mega-cap tech stocks. China has Alibaba and Tencent, two companies each worth over $600 billion, which are the big cloud, e-retailer, social network, and digital payment platform companies of Asia. These are similar to their U.S. tech counterparts in many ways, like a blend of Amazon, Facebook, Paypal, and so forth. The emerging market index also has the giant Taiwan Semiconductor Manufacturing Co, as well as the Korean tech conglomerate Samsung and several software companies in India. Due to these and other companies, the emerging market index actually has more tech/internet exposure than the foreign developed markets index.


The biggest companies in the EAFE index are Nestle, Roche, and Novartis- big consumer products and healthcare companies that don’t grow as quickly as these tech giants do in the United States and emerging markets.

The I fund was planning to add emerging markets to their index for the past few years by switching to a broader worldwide index and away from the MSCI EAFE index, but that has been put on hold due to concerns from politicians about investing any federal retirement system money into China. The United States and China have had an increasingly tense geopolitical relationship in recent years.

Some of those Chinese companies do invest in U.S. companies, however. Tencent, for example, owns a multi-billion dollar stake in Tesla, and owns several popular U.S. video game producers.

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