VXUS vs. VEU: Comparing Popular International Stock ETFs

Two prominent options in the international stock ETF space are Vanguard Total International Stock ETF (VXUS) and Vanguard FTSE All-World ex-US ETF (VEU) . If you’re looking to add international stocks to your investment mix let’s explore which of these ETFs may be a better fit for your portfolio . Here’s a detailed comparison of the profiles of VEU vs VXUS . 

Fund Followed: VXUS Takes the Lead

The indexes these two funds track may seem similar at first look but they have notable distinctions . VXUS follows the Global All Cap ex-US Index which is a subset of the FTSE Global Index . It is the only fund that uses this index . On the other hand VEU exclusively tracks the FTSE All-World ex-US Index which means no fund captures the entirety of the FTSE Global Index . It can be said that both indexes represent subsets of a larger index .

Stock Composition: VEU vs . VXUS

VEU deliberately excludes small-cap stocks whereas VXUS incorporates a small percentage of them . Consequently VXUS includes all the stocks present in VEU which makes it a more comprehensive option . VXUS has gained popularity and surpassed VEU in terms of assets despite being a newer option .

Fund Diversification: VXUS Takes the Lead Once Again

VXUS manages over $390 billion in assets and ranks among the top 50 largest ETFs globally . It comprises more than 7,500 securities from companies worldwide . In contrast VEU manages over $36 .7 billion in assets and holds around 3,500 securities which means that VXUS offers greater diversification when compared to VEU .

VXUS includes 3,557 international small-cap stocks which further reinforces the notion that VEU is a subset of VXUS . To put it in other words VXUS encompasses all 2,857 stocks present in VEU and an additional 3,557 small-cap stocks . 

It’s important to note that VXUS is market-cap weighted and the inclusion of more than 3,500 small stocks is just part of the entire fund . The composition of the fund does have slight differences .

About 75% of VXUS holdings consist of large-cap companies with mid-cap stocks accounting for 20% of the funds . The remaining 5% to 6% comprises small-cap companies . Large-cap stocks in VXUS mirror the overall US stock market while mid-capitalization stocks hold a more sizable share .

Around a quarter of VXUS securities are allocated to emerging markets which represents almost 23 .5% of the fund . This includes North American countries like Mexico and Canada, Middle Eastern countries and more . Europe holds the largest allocation at about 40% while the Asia-Pacific region accounts for 28 .9% .

VEU follows a slightly different approach . As a fund focused on international mid and large-cap stocks, it holds fewer stocks . VXUS encompasses 6,414 stocks of large-cap, mid-cap and small-cap international stocks . Although the two ETFs differ slightly in sector weighting, geographical distribution and fundamentals their performance has historically been almost identical .

Performance and Market Direction: A Balancing Act

Over the past decade both VXUS and VEU have delivered mediocre performances which were largely influenced by global market trends . While VEU has a slight edge in 10-year performance this may be attributed to its concentration in larger companies that have topped smaller ones . VXUS’s inclusion of smaller-cap stocks has yet to show a performance advantage .

Despite recent challenging times and double-digit losses these funds reflect the direction of global markets rather than intrinsic weaknesses . Investing in VXUS or VEU requires a belief that international markets will outperform the US market thus positioning either fund as a suitable choice for your investment strategy .

Final Thoughts

VXUS and VEU present amazing options for investors who are looking for exposure to international stocks . VXUS has the advantage in terms of index selection, diversification and overall popularity . Its inclusion of small-cap stocks enhances its breadth . On the other hand VEU’s exclusion of small-cap stocks makes it an incomplete representation of the global market . While VEU holds fewer securities it has shown a slight performance advantage over the past decade .

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