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, 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.
Home to almost 6,200 stocks, VXUS certainly helps investors stay diversified. The ETF’s holdings have a median market value of $25.5 billion, so VXUS can be viewed as a core large-cap holding for the international portion of an investor’s portfolio.
“The market-cap-weighting approach emphasizes multinational firms that are large and profitable. Companies such as Nestle, Samsung, and Novartis are among this fund’s top holding,” according to Morningstar. “Sector and country allocations are similar to a typical fund in this Morningstar Category, with stocks from Japan representing the largest country allocation, at almost 18% of the portfolio.”
VXUS devotes about 20% of its weight to emerging markets with Europe and developed Asia-Pacific economies combining for 73% of the fund’s weight.
“The composition of foreign index-tracking funds is different than those that invest in U.S. stocks and therefore can help diversify a portfolio of U.S. stocks,” according to Vanguard. “Because these funds hold companies that are not listed in the U.S., they can expand the investment opportunity set. Sector composition is also notably different from the broader U.S. market. This fund has higher allocations to firms from the basic-materials and financial sectors, and less in healthcare and technology compared with the Russell 3000 Index.”
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As is the case with many Vanguard ETFs, VXUS comes with a modest fee. The ETF charges just 0.11% per year, or $11 on a $10,000 investment, making it cheaper than 90% of competing funds, according to issuer data.
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. “Holdings are weighted by market capitalization, which keeps turnover and the associated transaction costs in check. The last reported turnover ratio landed in the bottom decile of the category. This fund also engages in securities lending, which helps offset its expenses.”
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