Basic Facts About the Vanguard Total International Stock Index

A Detailed Look at One of the Most Popular International Indexes

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Investors looking to build a low-cost international portfolio should look no further than the Vanguard Total International Stock Index. With over 6,000 equities in its portfolio, the fund provides broad and low-cost exposure to non-U.S. stock markets around the globe, including both developed and emerging markets. The index is available to investors as a mutual fund (ticker symbol VGTSX) or an exchange-traded fund (ticker symbol VXUS).

In this article, we will take a closer look at the popular international index fund’s portfolio, fees, and other considerations for investors.

ETF vs. Mutual Fund

The Vanguard Total International Stock Index is available as both an exchange-traded fund (ETF) and mutual fund. While the funds hold the same underlying index, they involve different levels of commissions, trading costs, tax implications, and other considerations.

The Vanguard Total International Stock Index ETF trades under the ticker symbol VXUS with a 0.11% expense ratio that's 90% lower than the industry average. As an ETF, the fund incurs a small brokerage commission when buying and selling and 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 ETF  trades under the ticker symbol VGTSX with a 0.18% expense ratio.

As a mutual fund, the fund doesn't incur any commissions or spread costs and always trade at their net asset value. The downside is that mutual funds are less tax efficient and have more restrictions on buying and selling.

Digging into the Portfolio

The Vanguard Total International Stock Index provides 43.2 percent exposure to Europe, 30.2 percent exposure to the Asia-Pacific, 18.9 percent exposure to Emerging Markets, and 7.1 percent exposure to non-U.S.

North America, as of January 31, 2017. In terms of industry exposure, the index is concentrated in financial services (21 percent), industrials (12 percent), consumer cyclicals (11 percent), consumer defensive (9 percent), technology (9 percent), and basic materials (9 percent).

Investors should keep in mind that the portfolio is market capitalization weighted, which means that the portfolio focuses on the largest companies in the world. In fact, the components of the index have an average market capitalization of $23 billion with only 16 percent exposure to mid-cap stocks and 4 percent exposure to small-cap stocks. This could potentially limit the diversification benefits of holding smaller asset classes that don’t move in tandem with global markets.

Impact of Expenses

The Vanguard Total International Stock Index funds have significantly lower expense ratios than funds with similar holdings. The mutual fund version of the index offers an expense ratio of 0.18 percent, which is 84 percent lower than the industry average 1.27 percent expense ratio, while the exchange-traded fund version has an even lower expense ratio of 0.11 percent. This could save investors upwards of $2,000 for every $10,000 invested over a 10 year period.

Minimizing fees is extremely important since every dollar paid out is not only lost, but investors miss out on the compounding interest of that dollar over time. For example, investing $100,000 in a fund that generates a 6 percent annual return with a 0.9 percent fee versus a 0.25 percent fee 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.

Alternatives to Consider

There are many different funds that provide exposure to international markets, including both international funds (that exclude the United States) and all-world funds (that include the United States). Investors looking to diversify a domestic portfolio may want to consider international funds, while those looking for an all-in-one fund should take a look at all-world funds.

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

The most comparable fund is the larger Vanguard FTSE All-World ex-U.S. ETF (VEU), which has roughly double the assets but a slightly higher expense ratio of 0.15 percent versus 0.11 percent. The key difference between the two is that Vanguard FTSE All-World ex-U.S. ETF does not include any small-cap exposure, has greater concentration in the financial services sector, and has slightly more geographic diversification in emerging markets.

Some other ETFs to consider 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)

The Bottom Line

Investors looking for a low-cost way to add international exposure to their portfolio should look no further than the Vanguard Total International Stock Index. With over 2,000 holdings, the index provides diversified exposure to mid- and large-cap equities around the world with an expense ratio that’s significantly lower than the industry average. Investors should keep in mind, however, that there are many options to choose from and select the ETF or mutual fund that’s right for their individual situation.