If you’re an investor looking for international exposure, you might be wondering about the differences between VEA vs VXUS.
Both are ETFs offered by Vanguard, one of the largest investment management companies in the world.
While they both provide exposure to international markets, there are some key differences to consider when deciding which one is right for your portfolio.
VEA, or the Vanguard FTSE Developed Markets ETF, tracks the performance of developed markets outside of the U.S. This includes countries such as Japan, the UK, and France. VXUS, or the Vanguard Total International Stock ETF, on the other hand, provides exposure to both developed and emerging markets.
This means it includes countries such as China, Brazil, and India in addition to the developed markets covered by VEA. Understanding the differences between these two ETFs can help you make a more informed investment decision.
Key Takeaways VEA vs VXUS
- VEA tracks developed markets outside of the U.S. while VXUS provides exposure to both developed and emerging markets.
- VEA may be a good choice for investors looking for more stable, established markets, while VXUS may be a better fit for those seeking higher potential returns.
- Both ETFs are offered by Vanguard, a trusted investment management company known for its low-cost, passive investment strategies.
Understanding VEA vs VXUS
When it comes to investing in international stocks, two popular options are the Vanguard FTSE Developed Markets ETF (VEA) and the Vanguard Total International Stock ETF (VXUS). Both VEA and VXUS offer broad exposure to international equities, but there are some key differences between the two funds that investors should be aware of.
Fund Composition and Underlying Index
VEA tracks the FTSE Developed All Cap ex-US Index, which includes large, mid, and small-cap stocks from developed markets outside the United States. This means that VEA invests in companies from countries such as Japan, the United Kingdom, and France, among others. On the other hand, VXUS tracks the FTSE Global All Cap ex US Index, which includes stocks from both developed and emerging markets outside the United States. This means that VXUS invests in companies from countries such as China, Brazil, and India, in addition to the developed markets included in VEA.
In terms of fund composition, VEA has a higher percentage of exposure to developed markets, while VXUS has a higher percentage of exposure to emerging markets. As of September 30, 2021, VEA had 84.5% of its holdings in developed markets, while VXUS had 74.3% of its holdings in developed markets. This means that VXUS may offer more potential for growth, but also carries more risk due to its exposure to emerging markets.
Differences in Market Exposure
One of the key differences between VEA and VXUS is their exposure to different markets. As mentioned earlier, VEA invests primarily in developed markets outside the United States, while VXUS invests in both developed and emerging markets. This means that VXUS may offer more potential for growth, but also carries more risk due to its exposure to emerging markets.
Another difference between the two funds is their exposure to different sectors. VEA has a higher percentage of exposure to financials and consumer staples, while VXUS has a higher percentage of exposure to technology and healthcare. This means that investors may choose one fund over the other based on their sector preferences.
In conclusion, VEA and VXUS are both popular options for investors seeking exposure to international equities. While both funds offer broad exposure to international markets, they have different underlying indices and varying levels of exposure to different markets and sectors. Investors should carefully consider their investment goals and risk tolerance before choosing between VEA and VXUS.
Financial Performance and Returns
When comparing VEA and VXUS, Financial Performance and Returns are crucial factors to consider. Here is a breakdown of the two ETFs’ performance and returns.
Historical Annual Returns
Historical annual returns are an important metric to consider when evaluating ETFs. Over the past 10 years, VEA has outperformed VXUS with an annualized return of 4.29%, while VXUS has yielded a comparatively lower 3.81% annualized return. However, in the year-to-date period, VEA achieves a 11.71% return, which is slightly higher than VXUS’s 10.06% return.
Volatility and Risk Assessment
Volatility and risk are important factors to consider when evaluating ETFs. VEA and VXUS both have a similar level of volatility, with a standard deviation of 14.14% and 14.15%, respectively. The Sharpe ratio is a measure of risk-adjusted returns, and VEA has a Sharpe ratio of 0.55, while VXUS has a Sharpe ratio of 0.54. This indicates that VEA has slightly better risk-adjusted returns than VXUS.
Past performance is not a guarantee of future results, but it is still an important factor to consider when evaluating ETFs. While VEA has outperformed VXUS in the past, it is important to remember that past performance does not guarantee future results. It is important to conduct thorough research and analysis before making any investment decisions.
In summary, when evaluating VEA vs VXUS, it is important to consider their historical annual returns, volatility, and risk. While VEA has outperformed VXUS in the past, it is important to conduct thorough research and analysis before making any investment decisions.
Investment Strategy and Portfolio Management
When investing in the global market, diversification is a crucial aspect to consider. Diversification helps to spread risk across different sectors, regions, and asset classes, reducing the impact of market volatility on your portfolio. Two popular ETFs for diversification are VEA and VXUS.
Diversification Benefits
VEA and VXUS both provide exposure to international equities, but they differ in their composition. VEA tracks the FTSE Developed All Cap ex US Index, which includes large, mid, and small-cap stocks from developed countries excluding the US. VXUS, on the other hand, tracks the FTSE Global All Cap ex US Index, which includes stocks from both developed and emerging markets.
Investing in both VEA and VXUS can provide broad diversification benefits. VEA gives you exposure to developed markets, while VXUS provides exposure to emerging markets. This combination can help to reduce risk and enhance returns in the long term.
Portfolio Growth Considerations
When considering portfolio growth, it is essential to look at the long-term performance of the ETFs. VEA and VXUS have similar expense ratios of 0.05% and 0.07% respectively, but their performance differs slightly.
Over the past 10 years, VEA has had an average annual return of 4.91%, while VXUS has had an average annual return of 4.33%. However, past performance is not an indicator of future performance, and it is essential to consider your investment goals and risk tolerance before making any investment decisions.
In summary, investing in both VEA and VXUS can provide diversification benefits and enhance portfolio growth in the long term. However, it is essential to consider your investment goals and risk tolerance before making any investment decisions.
Cost Analysis
Expense Ratios
When comparing VEA and VXUS, one of the first things to consider is their expense ratios. VEA has an expense ratio of 0.05%, while VXUS has an expense ratio of 0.09%. This means that VEA is slightly cheaper to own than VXUS. However, the difference in expense ratios is not significant enough to make a huge impact on your overall returns.
Broker Fees and Tax Implications
Another factor to consider when comparing VEA and VXUS is broker fees and tax implications. Both funds are commission-free to trade on Vanguard, which means you won’t have to pay any fees to buy or sell shares. However, it’s important to note that if you hold these funds in a taxable account, you may be subject to capital gains taxes when you sell your shares.
It’s also important to consider the tax implications of the underlying investments in each fund. VEA invests in developed markets outside of the US, while VXUS invests in both developed and emerging markets. This means that VXUS may be subject to higher taxes on dividends and capital gains in some countries. However, both funds are designed to be tax-efficient for US investors.
Overall, when it comes to cost analysis, VEA and VXUS are both relatively inexpensive to own and trade. However, it’s important to consider the expense ratios and tax implications of each fund before making a decision.
Investor Considerations
Investment Objectives and Time Horizon
When deciding between VEA and VXUS, it is important to consider your investment objectives and time horizon. VEA invests in developed markets, while VXUS invests in both developed and emerging markets. If your investment objective is to gain exposure to a broader range of international markets, VXUS may be a better choice for you. However, if you prefer to focus on developed markets, VEA may be a more appropriate option.
Your time horizon is also an important factor to consider. If you have a longer time horizon, you may be more comfortable with the higher volatility of emerging markets, which VXUS invests in. On the other hand, if you have a shorter time horizon, you may prefer the stability of developed markets, which are the focus of VEA.
Assessing Investment Products and Services
When assessing investment products and services, it is important to consider factors such as fees, performance, and risk. Both VEA and VXUS have low expense ratios, making them cost-effective options for investors. However, it is important to note that there may be other fees associated with investing in these funds, such as transaction fees or account maintenance fees.
When it comes to performance, both VEA and VXUS have historically provided strong returns. However, past performance is not indicative of future results, and it is important to conduct thorough research before making any investment decisions.
Finally, it is important to consider the risks associated with investing in these funds. Both VEA and VXUS are subject to market risk, which means that their values can fluctuate based on market conditions. Additionally, VXUS is subject to additional risks associated with investing in emerging markets, such as political instability or currency risk.
