Sizing Up Vanguard's ETFs Post Split

By Gregory S. Davis | September 08, 2008 AAA

The financial sector may be dragging the broader stock market down, but it is also creating an opportunity for investors to buy in. A stock split for a company is often considered a good sign, and the same sentiment can be carried over to a group of Vanguard ETFs that split 2-for-1 in June. In uncertain times I like the diversification and the post split look of Vanguard's low cost ETFs.

Overseas
The Vanguard Emerging Markets Stock ETF (AMEX:VWO) has more than 50% of its exposure to companies in Brazil, China, South Korea and Taiwan. While the US Real GDP Growth rate is expected to meander between 1-2.6% for the next four years the GDP projections for the other countries mentioned are generally north of 4% with China being the exception with growth forecasts in the neighborhood of 9%. Top holdings investors may be familiar with oil company OAO Gazprom (OTC:OGZPY.PK), telecommunications company China Mobile (NYSE:CHL) and Brazilian oil company Petroleo Brasileiro (NYSE:PBR). (To learn more about investing abroad, read Going International.)

Investigate Your International Exposure
An investor who only has his or her international exposure covered by the iShares MSCI EAFE Index (AMEX:EFA) is actually heavily concentrated in companies found in Western Europe and Japan. While EFA is down about 24.5% versus being down the roughly 29.1% VWO has fallen since the beginning of the year, VWO shows its dominance over the previous three years by returning about 26% versus about 12.55% for EFA (3-year figures are as of July 31).

1,300 Stocks, One ETF
The Vanguard Total Stock Market ETF (AMEX:VTI) does what its name implies by investing in an index that covers nearly all of the stocks traded on the NYSE, AMEX and the OTC. The performance of VTI is very similar to the ups and downs of the SPDRS S&P 500 ETF (AMEX:SPY). The major difference between the two would have to be that the 1,300 securities covered by VTI has helped the ETF have a slightly better return than SPY since the beginning of the year with the two investments declining roughly 10.96% and 12.28% respectively. Diversification counts especially during down markets.(To why it makes sense to diversify, check out The Importance Of Diversification.)

Small Company Focus
The Vanguard Extended Market ETF (AMEX:VXF) invests in an index of small and medium sized U.S. companies. VXF returns are somewhat similar to returns of the iShares Russell 2000 Index ETF (AMEX:IWM) that tracks small capitalization stocks. However, as financials have continued to plague returns of the overall stock market, the more diversified IWM has been more resilient. VXF and IWM are down about -8.21% and -4.01% since the beginning of the year.

Final Thoughts
The splits for the ETFs have made their prices more attractive and the downturn in the economy is opening a window for investors willing to look through it into the future. Low prices tied to ETFs with low expense ratios can make a winning combination for investors searching for the shield of diversification.

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