The Vanguard Total International Stock Index

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The Vanguard Total International Stock Index fund provides broad and low-cost exposure to non-U.S. stock markets around the globe. It includes developed as well as emerging markets, with about 7,742 equities in its portfolio. The index is available to investors as a mutual fund in the form of Admiral Shares (VTIAX) or as an exchange-traded fund (ETF) (VXUS).

ETF vs. Mutual Fund

The Vanguard Total International Stock Index mutual fund and ETF share the same underlying index, but they involve different levels of commissions, trading costs, tax implications, and other matters.

The Vanguard Total International Stock ETF trades under the ticker symbol VXUS with a 0.08% expense ratio that's 87% lower than the industry average. As an ETF, the fund incurs a small brokerage commission when buying and selling. It may trade at a discount or premium to the net asset value. The upshot is that ETFs are more tax-efficient and are more easily bought and sold in the open market.

The Vanguard Total International Stock Index Fund Admiral Shares trade under the ticker symbol VTIAX. It has a 0.11% expense ratio and requires a $3,000 minimum investment. As a mutual fund, it doesn't incur any commissions or spread costs and always trades at its net asset value.

The downside to mutual funds is that they are less tax-efficient and have more limits on buying and selling as compared to ETFs.

Digging Into the Portfolio

The Vanguard Total International Stock Index Fund provided 40.9% exposure to Europe, 26.7% to the Asia-Pacific, 24.7% to emerging markets, 7.2% to North America, and 0.5% to the Middle East, as of December 31, 2021. In terms of industry exposure, the index is focused on financial services, industrials, consumer staples, consumer discretionary, technology, healthcare, and basic materials. Other sectors, like energy, telecommunications, utilities, and real estate, account for the rest of the portfolio.

If you choose to invest in this fund, keep in mind that the portfolio is market-capitalization-weighted, which means that it focuses on the largest companies in the world. The stocks that make up the index have an average market capitalization of $35 billion, and this figure does not reflect the mid-cap and small-cap markets. This focus on large-cap may limit the diversification perks of holding smaller asset classes that don’t move in tandem with global markets.

Expenses and Risk Factors

The Vanguard Total International Stock Index funds have much lower expense ratios than funds with many of the same holdings. The mutual fund version of the index offers an expense ratio that may be able to save you upwards of $2,000 for every $10,000 invested over a 10-year period, as compared to competing funds.

As you invest, you'll want to do your best to minimize fees, because every dollar paid out is not only lost, but also missing out on compound returns over time. For example, suppose you invest $100,000 in a fund that has a 6% annual return. If you choose a fund that has a 0.9% fee versus one with a 0.25% fee, you will lose out on nearly $100,000 over a 30-year period. The Vanguard Total International Stock Index is among the most attractive international funds due to its low costs, compared to competing funds.

You should also look to other risk factors as you invest. For example, the top ten largest holdings account for 10% of the portfolio, which means these companies could have an immense impact on the whole fund. The fund is also highly focused in European stocks, with almost 40% exposure, which means that problems in Europe could have a costly impact the entire fund.

Alternatives to Consider

There are many types of funds that ​provide exposure to international markets, including international funds (which exclude the U.S.) and all-world funds (which include the U.S.). If you are looking to diversify a domestic portfolio, you may want to think about international funds. On the other hand, those who are looking for an all-in-one fund should take a look at all-world funds.

The Vanguard Total International Stock Index Fund is an international fund that excludes the U.S.

Vanguard also offers all-world funds like the Vanguard Total World Stock ETF (VT).

The fund that is most like the Vanguard Total International Stock Index fund is the Vanguard FTSE All-World ex-U.S. ETF (VEU). It has a slightly lower expense ratio of 0.08% percent, versus 0.11%. The key difference between the two is that the Vanguard FTSE All-World ex-U.S. ETF does not include any small-cap stocks. Instead, there is a separate fund that focuses on the small-cap market, Vanguard FTSE All-World ex-US Small-Cap (VSS).

Other ETFs that are worth looking into include:

  • iShares Core MSCI Total International Stock ETF (IXUS)
  • iShares MSCI ACWI ex-U.S. ETF (ACWX)
  • SPDR MSCI ACWI ex-U.S. ETF (CWI)

In Review

With over 7,742 holdings, the index provides diversified exposure to mid- and large-cap equities around the world, with an expense ratio that’s much lower than many others in the industry. As you invest, you should keep in mind that there are many options to choose from. Select the ETF or mutual fund that’s right for your own needs and goals.

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