Investors are widely embracing low-fee international exchange traded funds in 2017. With international equities outpacing U.S. stocks and luring U.S. investors in the process, investors would do well to remember one of the largest ex-US exchange traded funds: The Vanguard Total International Stock ETF (NASDAQ: VXUS).
VXUS is up nearly 24% year-to-date. VXUS, which holds developed and emerging markets equities, tracks the FTSE Global All Cap ex US Index. Investing in international stocks, whether it be developed or emerging markets, can be tricky. Being properly diversified while avoiding single stock risk is crucial to skirting volatility and producing positive returns over the long-term. Investors who want overseas exposure but are less familiar with foreign companies can use international exchange traded funds to diversify a portfolio.
“The foreign stocks, developed markets specifically, are more diversified than ever,” according to Morningstar. “I think if you look at what’s going on in emerging markets, China has become a really big, prominent part of a lot of emerging-market indexes. Right now, you’re around 25% to 30%, depending on the fund and the index that you are looking at, that’s pretty typical.”
Vanguard recently cut the fund’s expense ratio to 0.11% from 0.12%. This is one of the lowest fees in the foreign large-blend Morningstar Category, supporting a Positive Price Pillar rating, notes Morningstar. That annual fee makes VXUS cheaper than 90% of competing funds, according to Vanguard data.
VXUS allocates nearly 20% of its weight to emerging markets stocks and over 43% to European equities. The ETF holds almost 6,300 stocks with a median market value of $26.4 billion.
“You get a broader opportunity set outside of just U.S. stocks,” according to Morningstar. “You have to remember here, 50% of the global market cap is really overseas right now. There’s a much bigger opportunity set that investors can take advantage of, many, many more companies overseas than there are in the U.S. Those are really, kind of, the two big diversification advantages you can get from international stocks.”
Japan and the U.K. combine for 30% of the geographic exposure in VXUS. France, Canada and Germany combine for 19.5%.
For more information on ETFs, visit our ETF 101 category.