This index enables Vanguard to offer its clients access to the most investable areas of what potentially could be a highly illiquid overseas marketplace.  It also enables the provider to remain competitive and try to grab attention and market share from small-cap international ETFs that are already established, such as the International Small Cap Dividend Fund (DLS), iShares MSCI EAFE Small-Cap Index Fund (SCZ), the SPDR S&P International Small-Cap Fund (GWX), and the FTSE Developed Ex-US Small Cap ETF (IFSM), states Murray Coleman of Index Universe.

Vanguard has a good advantage in the industry, in that, last month, it introduced its long-closed International Explorer Fund (VINEX), which had an expense ratio of 0.35%, making it the cheapest mutual fund in its category and making an actively managed fund the least expensive option for retail investors when matched against corresponding ETFs.

As for the Vanguard FTSE All-World ex-US Small-Cap Index Funds, investor shares will require at least $3,000 with an expense ratio of 0.60% and institutional shares will require $5 million and charge 0.35% in expenses.  As for the ETF version, the expense ratio will be 0.38%, making it competitive with BGI’s version, but more costly than IFSM.

This new index will provide a good alternative and open up options for traditional index mutual fund investors.

A foreign small-cap fund that isn’t an index mutual fund or exchange traded fund (ETF) has recently reopened its doors to new investors, but how does it stack up against ETF rivals?

The Vanguard International Explorer Fund (VINEX) is an actively managed mutual fund that has been closed to new investors since 2004.

With its reopening, though, there will hopefully be more lower-cost choices in small-cap international stock funds, according to Murray Coleman of Index Universe. VINEX is down 47.4% year-to-date.

The current expense ratio of VINEX is 0.35% a year, which beats all current broadly diversified ETF and index fund contenders.

The iShares MSCI EAFE Small Cap Index (SCZ), with an expense ratio of 0.40%, offers a low-cost alternative but it does not prvoide emerging markets exposure. SCZ is down 48.9% year-to-date.

Five funds compete with one another directly with broadly diversified portfolios, but there are a total of 11 different ETFs that target more specialized or niche markets.

There are some caveats to small-cap international stock funds. VINEX requires initial investments of $25,000 and charges 2% redemption fees on assets held less than two months. But whale investors of $100,000 or more face fewer restrictions on minimum asset levels.

VINEX has a turnover rate of 45% with around 200 stocks and SZC at 15% with 600+ stocks.

WisdomTree International SmallCap Dividend FUnd (DLS) was the first to market broad-based and highly diversified ETFs. It cited that dividened-based funds were different than traditional market cap-weighted ETFs in explaining its pricing structures. DLS is down 45.5% year-to-date and charges an expense ratio of 0.58%.

Index returns have varied in the group by 4%. Over the long-term, DLS, the best-performing ETF in the last five years, outperformed SCZ by 2%.