As a newer entrant to the international exchange-traded fund (ETF) space, the Vanguard Total International Stock ETF (NASDAQ: VXUS) was launched in 2011. Since its inception, VXUS has earned investors an annualized return of 4.03% by tracking the performance of global company stocks listed on the FTSE Global All Cap ex U.S. Index. The target benchmark index follows large-, mid- and small-cap equities of companies operating outside the United States.
The international equities held within VXUS provide investors with a unique opportunity to diversify a portfolio in both developed and emerging markets around the world. The stock movement of companies based overseas does not always have a direct correlation to domestic stock prices, providing investors an opportunity to take advantage of market movements that may differ from shifts in U.S. equity markets.
The Vanguard Total International Stock ETF invests at least 95% of all fund assets in an attempt to mimic the performance of the FTSE Global All Cap ex U.S. Index. VXUS is most heavily weighted in Europe, with 42.5% invested in the region, followed by 29.6% in the Pacific, 20.6% in emerging markets and 6.6% in North America. Top holdings follow suit with the fund's target index, including Royal Dutch Shell, Nestlé, Tencent Holdings and Samsung Electronics.
VXUS is managed by the Vanguard Group, known widely for its expertise in providing investors access to low-cost ETFs. VXUS implements a passive management investment strategy that is based on a full replication approach, which assists in keeping the total expense ratio passed on to investors of 0.11% well below the sector average for comparable ETFs.
As with other ETFs and individual stocks, the Vanguard Total International Stock ETF can be bought and sold in the secondary market, with or without the help of a broker. While the expense ratio for VXUS is impressively low, other fees associated with trading including broker commissions vary depending on which platform the investor uses.
Suitability and Risk
VXUS is not an appropriate holding for every investor, as it carries with it more risk than other broadly focused funds that include additional asset classes or a combination of domestic and international equities. Investors adding VXUS to a portfolio are exposed to the risks inherent to international investing, including emerging country risk, political risk, market risk and currency risk. Each of these factors can have a drastic effect on international stock holdings like those included in the VXUS company roster, which may result in the fund experiencing greater volatility than other ETFs.
As a small percentage of a comprehensive, diversified portfolio, VXUS is most appropriate for investors seeking growth over the long time horizon. Because of the high level of volatility that can be experienced in the international market, investors with a high tolerance for risk may find this ETF suitable as an international allocation. However, VXUS holds 6,352 stocks within the fund across a broad range of large-, mid- and small-cap companies as of 2018, which helps reduce the total risk investors face when adding this ETF to a portfolio.