Arguably the best way to cover the stock market outside the U.S. is with a diversified, low-cost mutual fund, and Vanguard has several notable options. Vanguard funds cover the entire spectrum of stocks, including almost every conceivable slice of the international stock market you can imagine. They offer exposure to developed markets, emerging markets, European stock, global real estate, and specialized international fund types.
Benefits of Investing in International Stocks
Investing in international stocks—also called foreign stocks, world stocks, non-U.S. stocks, global stocks, or international equities—is an essential part of building a diversified portfolio. Depending upon several factors, such as risk tolerance and time horizon, a good allocation to international stocks in a portfolio is in the range of 10–20%.
The primary reason to invest in international stocks is to gain access to markets outside of the U.S., which is a fundamental aspect of diversification. U.S. and foreign markets do not always move together; the U.S. may outperform foreign stocks for years at a time, and vice versa. Investing in international stocks also helps to hedge against currency fluctuations. For example, when the U.S. dollar is declining compared to foreign currencies, international stocks can be advantageous to hold, while the opposite is also true.
List of Vanguard International Stock Funds
The following Vanguard international funds are good places to start for those looking to invest in international markets:
Vanguard Developed Markets Index (VTMGX)
Vanguard's VTMGX holds international stocks of all capitalizations. It passively tracks the FTSE Developed All Cap ex U.S. Index, which covers 3,960 stocks. Developed markets are countries like those in western Europe, such as Italy, France, Germany, Spain, Portugal, Germany, Finland, Switzerland, Norway, and the United Kingdom. VTMGX is an Admiral share class fund, which means the minimum initial investments are $3,000 for most index funds and $50,000 for actively managed funds. The expense ratio is 0.07%.
Vanguard Emerging Markets Select Stock (VMMSX)
This international stock fund, which includes 286 stocks, focuses on stocks of emerging market countries, such as India, China, Russia, and Brazil. While emerging markets can be riskier than U.S. and developed foreign markets, the potential for higher returns is also there. A fund like VMMSX can make a good complement to a developed markets international fund within a diversified portfolio. The expense ratio for VMMSX is 0.93%, and the minimum initial investment is $3,000.
Vanguard Emerging Markets Stock Index (VEMAX)
If you prefer a passively-managed index fund to gain low-cost, diversified access to emerging markets, VEMAX is a good choice. VEMAX passively tracks the FTSE Emerging Markets All Cap China A Inclusion Index, which covers over 5,000 stocks in countries like China, Taiwan, Russia, Brazil, and India. The expense ratio for VEMAX is 0.14%, and the minimum initial investment is $3,000.
Vanguard European Stock Index (VEURX)
VEURX is a passively-managed index fund that focuses on European stocks. With this international stock fund, you'll get low-cost broad exposure to companies in European countries like Italy, France, Germany, Spain, Portugal, Germany, Finland, Switzerland, Norway, and the United Kingdom. VEURX tracks the FTSE Developed Europe All Cap Index, which includes 1,336 European stocks and represents nearly half of the international equity market. The expense ratio for VEURX is 0.23%, and the minimum initial investment is $3,000. The Admiral share version of the fund (ticker: VEUSX) has an expense ratio of just 0.10%.
Vanguard International Explorer (VINEX)
Vanguard's VINEX is a good fit for investors looking for an aggressive mix of international stocks, primarily in the developed markets and Pacific markets, with about 10% allocated to emerging markets. VINEX is an actively-managed fund that holds 333 stocks. The minimum initial investment is $3,000, and the expense ratio is 0.39%.
Vanguard International Value (VTRIX)
Investors looking for a value-oriented international stock fund should take a close look at VTRIX. The fund management looks for stocks in developed and emerging markets that they believe the market has overlooked or undervalued, so they are potentially selling at bargain prices. The average market capitalization is large-cap, and the portfolio consists of 153 stocks. The expense ratio for VTRIX is 0.37%, and the minimum initial investment is $3,000.
Vanguard Pacific Stock Index (VPACX)
The international stock fund from Vanguard focuses on stocks of countries in the Pacific region, primarily in Japan, which makes up approximately 25% of the international market. VPACX passively tracks the FTSE Developed Asia Pacific All Cap Index, which covers 2,347 stocks in the Pacific region. The expense ratio for VPACX is 0.23%, and the minimum initial investment is $3,000. There's also an Admiral share version (ticker: VPADX), which has a lower expense ratio of 0.10%.
Vanguard Total International Stock Market (VGTSX)
If you were to pick one low-cost stock mutual fund to cover the international stock market, VGTSX would make a fine choice. With VGTSX, investors get broad exposure to developed and emerging markets that cover the entire world outside the U.S. VGTSX passively tracks the FTSE Global All Cap ex U.S. Index, which represents over 7,000 stocks. The expense ratio for VGTSX is 0.17%, and the minimum initial investment is $3,000. The Admiral share class (ticker: VTIAX) has an expense ratio of 0.11%.
Vanguard FTSE All-World Ex-US Index (VFWIX)
Investors looking for broad coverage of the international equity markets, but a bit more focused than the total international stock fund, will want to take a look at VFWIX, which focuses primarily on Europe, the Pacific, Canada, and emerging markets. The portfolio holds about 2,500 stocks, has an expense ratio of 0.20%, and a $3,000 minimum initial purchase amount.
Vanguard Global Ex-US Real Estate (VGXRX)
The one sector fund from Vanguard that covers international stocks is VGXRX, which focuses on the real estate sector in the form of real estate investment trusts (REITs). These companies buy and own office buildings, hotels, and other real estate properties. The expense ratio for VGXRX is 0.31%, and the minimum initial purchase amount is $3,000. The Admiral share class (ticker: VGRLX) has an expense ratio of 0.12%.
The Bottom Line
Choosing the best Vanguard international stock fund does not need to be a complex task. If you're a beginning investor, you may be able to choose just one of the broadly diversified international stock funds, such as VGTSX or VINEX. The more experienced investors may not need more than this, but they may want to fill foreign market niches, such as European stock or emerging markets.
The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.