Investors looking to wade back into international stocks following the recent tumble or those looking for a related ETF to put on their radars should consider cost-effective options, such as the Vanguard Total International Stock ETF (NASDAQ: VXUS).
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 ETFs to diversify a portfolio.
“The fund tracks the FTSE Global All Cap ex US Index, which includes stocks of all sizes from foreign developed and emerging markets,” said Morningstar in a recent note. “It weights them by market capitalization, an approach that benefits investors by capturing the market’s collective opinion of each stock’s value while keeping turnover low. Market-cap-weighting can be tough to beat because the market tends to do a good job valuing stocks over the long term. Occasionally it will increase the fund’s exposure to expensive stocks when investors get excited about an area of the market. But this doesn’t undermine its long-term efficacy.”
VXUS charges just 0.09% per year, or $9 on a $10,000 investment, making it one of the more cost-effective options in the international blend arena.
A Sensible Blend
Emerging markets stocks represent close to 23% of the massive VXUS roster. Not only is the fund diversified at the geographic level, but a single stock risk within the fund is also minimal.
“This is one of the broadest portfolios in the foreign large-blend Morningstar Category. Its exceptional diversification mitigates the impact of holding the worst-performing names,” according to Morningstar. “It owns more than 7,000 stocks and has only 8% of assets in its 10 largest positions. Its regional composition looks modestly different from the typical fund in the category because it has a larger dose of emerging-markets stocks. But their weight in the portfolio isn’t large enough to materially increase the fund’s risk or compromise its category-relative performance.”
The $18.8 billion ETF allocates a combined 27.7% of its weight to Japan and the U.K. China is the fund’s largest emerging markets weight at 8.2%.
Morningstar has a gold rating on VXUS.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.