August 21, 2008 at 1:00 am by Tom Lydon
Vanguard has transformed their Total International Stock Index Fund (VGTSX) mutual fund and left behind the fund-of-funds idea. Instead, it will invest in individual stocks. Could it possibly lead to an exchange traded fund (ETF) version?
While the provider claims that an ETF conversion is neither the goal nor the reason for changing this leading fund’s strategy, it is not out of the question. In fact, Vanguard’s two internationally diversified ETFs are doing well as far as attracting assets and rank among the top 10 largest international ETFs: the FTSE All-World ex-US ETF (VEU) and the EuroPacific ETF (VEA). The performance hasn’t been so hot this year, though. Respectively, they’re down 19% and 18.9% year-to-date.
Dan Serra for Index Universe also points out that Vanguard holds a patent protecting its use of forming a second share class for ETFs, which makes this process relatively low-cost and pain-free. Among the potential reasons for an ETF transformation would include instant brand recognition for portfolios, since anything broad-based by Vanguard is going to attract assets; it would be easy to use; create more direct market competition, particularly against the market leader, the iShares MSCI EAFE (EFA); and there would be better diversification in one fund.
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