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 7,576 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 considerations.

The Vanguard Total International Stock ETF trades under the ticker symbol VXUS with a 0.08% expense ratio that's 95% 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 Fund Admiral Shares trade under the ticker symbol VTIAX with 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 is that mutual funds are less tax-efficient and have more restrictions on buying and selling compared to ETFs.

Digging Into the Portfolio

The Vanguard Total International Stock Index provides 39.7% exposure to Europe, 27.3% exposure to the Asia-Pacific, 25.6% exposure to emerging markets, and 6.8% exposure to North America, as of May 31, 2021. In terms of industry exposure, the index is concentrated in financial services, industrials, consumer staples, consumer discretionary, technology, healthcare, and basic materials. Other sectors like energy, telecommunications, utilities, and real estate account for the remainder of the portfolio.

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. The components of the index have an average market capitalization of $34 billion that comes with a lack of attention to the mid-cap and small-cap markets. This could potentially limit the diversification benefits 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 significantly lower expense ratios than funds with similar holdings. The mutual fund version of the index offers an expense ratio that could save investors upwards of $2,000 for every $10,000 invested over a 10-year period relative to competing funds.

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% annual return with a 0.9% fee versus a 0.25% 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 compared to competing funds.

Investors should also consider other potential risk factors. For example, the top ten largest holdings account for 10% of the portfolio, which means these companies could have an oversized impact on the entire fund. The fund is also highly concentrated in European stocks—with almost 40% exposure—which means that any problems in Europe could adversely impact the entire fund.

Alternatives to Consider

Many different funds ​provide exposure to international markets, including international funds (which exclude the U.S.) and all-world funds (which include the U.S.). 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., although Vanguard also offers all-world funds like the Vanguard Total World Stock ETF (VT).

The most comparable fund to the Vanguard Total International Stock Index fund is the Vanguard FTSE All-World ex-U.S. ETF (VEU), which 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 exposure, instead offering a separate fund specializing in the small-cap market, Vanguard FTSE All-World ex-US Small-Cap (VSS).

Some other ETFs to consider include:

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

In Review

With over 7,576 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.