Relatively consistent leadership and a middle of the pack benchmark, the iShares MSCI EAFE ETF ([EFA]), have produced a great backdrop for momentum investors in the developed ex-US equity market.

The core of the US market has reasserted its dominance in the second half of 2025 after a shaky start to the year. The relative strength picture within domestic equities has remained quite consistent over the last few years, but with the core of the US market doing so well, it’s been difficult for asset managers to find ways to outperform on the domestic front. Not to mention the high level of concentration of the S&P 500 which puts investors in a tough spot between maximizing performance and keeping an acceptable level of diversification in clients’ portfolios. However, this hasn’t been the case on the international front, especially when it comes to developed markets. Relatively consistent leadership and a middle of the pack benchmark, the iShares MSCI EAFE ETF (EFA), have produced a great backdrop for momentum investors in the developed ex-US equity market. There are two key ingredients for momentum strategies to thrive. The first is that there are enough areas outside of the benchmark that are doing well that can generate alpha. As we can see in the image below, EFA has ranked in the bottom half of the Developed Markets ETF Matrix (rank 12 or below) since November 2020. EFA has ranked 15th or worse since June 2024.

The second key ingredient for a momentum strategy’s success is stable leadership, and that has also been the case for international developed markets this year. When looking at the rankings in the Developed Markets ETF Matrix at the end of last year until now, the top two names entering the year are still the top two names today. Of the 11 names in the top half of the matrix to start the year, nine still rank in the top half today. This consistent leadership structure and consistently weak benchmark present a great opportunity for momentum investors in the space. While international equities may not be heavily weighted in clients’ portfolios due to the strength of the core US market, they are very competitive with broad US equities whether that be equal-weighted large cap US or US small caps which may still make up a good portion of clients' portfolios. In this case, international developed markets can provide a good alternative for some spaces within US equity markets and are worth a look in that regard.