If you’re an investor looking to diversify your portfolio with exchange-traded funds (ETFs), you might have come across Vanguard’s VTI vs VEU.
Both funds provide investors with broad exposure to the stock market, but they differ in terms of their investment strategies, management, and risk and return metrics.
In this article, we’ll take a closer look at VTI vs VEU, and help you decide which one is right for your investment goals.
VTI, or the Vanguard Total Stock Market ETF, is a popular ETF that tracks the performance of the CRSP US Total Market Index. This index includes all the stocks listed on the major US exchanges, providing investors with exposure to the entire US stock market.
On the other hand, VEU, or the Vanguard FTSE All-World ex-US ETF, tracks the performance of the FTSE All-World ex-US Index, which includes stocks from developed and emerging markets outside of the US. By investing in VEU, investors can diversify their portfolio beyond US borders.
To compare VTI vs VEU, we’ll conduct a comparative analysis of their performance, cost, holdings, and other factors. We’ll also discuss the investment strategy and management of each fund, and highlight some practical considerations for investors.
By the end of this article, you’ll have a better understanding of VTI vs VEU, and be able to make an informed decision about which ETF is best for you.
Key Takeaways VTI vs VEU
- VTI and VEU are two popular ETFs offered by Vanguard that provide investors with broad exposure to the stock market.
- VTI tracks the performance of the CRSP US Total Market Index, while VEU tracks the performance of the FTSE All-World ex-US Index.
- To compare VTI vs VEU, we’ll conduct a comparative analysis of their performance, cost, holdings, and other factors, and discuss the investment strategy and management of each fund.
Understanding VTI vs VEU
If you’re looking to invest in the stock market, you may have come across two ETFs: VTI and VEU. Both are offered by Vanguard, but they have some key differences. In this section, we’ll take a closer look at what VTI and VEU are and what sets them apart.
What Is VTI?
VTI, or Vanguard Total Stock Market ETF, is an investment that seeks to track the performance of the CRSP US Total Market Index. This index covers nearly 100% of the U.S. equity market and includes large-, mid-, small-, and micro-cap stocks.
VTI has a very low expense ratio of only 0.03%, making it an attractive option for investors who want to keep their costs low. It also has a dividend yield of around 1.48%, which is lower than some other ETFs.
What Is VEU?
VEU, or Vanguard FTSE All-World ex-US ETF, is an investment that seeks to track the performance of the FTSE All-World ex US Index. This index covers large- and mid-cap stocks in developed and emerging markets outside of the U.S.
VEU has a slightly higher expense ratio than VTI, at 0.08%. It also has a higher dividend yield, at around 2.99%. This may make it a more attractive option for investors who are looking for international exposure and a higher yield.
When deciding between VTI and VEU, it’s important to consider your investment goals and risk tolerance. VTI is a good option for those who want exposure to the entire U.S. stock market, while VEU is a good option for those who want exposure to international markets.
Overall, both VTI and VEU are solid investments that can help diversify your portfolio and potentially provide long-term growth.
Comparative Analysis VTI vs VEU
When deciding between VTI and VEU, it is important to consider their similarities and differences. Here is a comparative analysis of VTI and VEU that will help you make an informed decision.
Performance Comparison
VTI tracks the CRSP US Total Market Index, which includes all the stocks listed on the NYSE, NASDAQ, and the American Stock Exchange. On the other hand, VEU tracks the FTSE All-World ex-US Index, which includes all the stocks in developed and emerging markets outside of the United States. Over the past 10 years, VTI has provided a total return of 16.23%, while VEU has provided a total return of 7.15%. However, past performance is not a guarantee of future results.
Expense Ratio and Dividend Yield
VTI has a lower expense ratio of 0.03% compared to VEU’s expense ratio of 0.07%. When it comes to dividend yield, VEU has a higher yield of 3.02% compared to VTI’s yield of 1.48%. This means that VEU may be better suited for investors looking for higher dividend income.
Holdings and Diversification
VTI is focused on technology, with its top holdings including Apple, Microsoft, Amazon, and Facebook. On the other hand, VEU is more diversified, with its top holdings including Nestle, Tencent, and Samsung. VEU also provides exposure to foreign markets, which may provide additional diversification benefits. VTI is classified as a large blend fund, while VEU is classified as a foreign large blend fund. VEU has a market capitalization of $33.05 billion, while VTI has a market capitalization of $243.51 billion.
In summary, VTI and VEU have different investment objectives and provide exposure to different markets. VTI is focused on the US market and technology, while VEU is more diversified and provides exposure to foreign markets. When it comes to expense ratio and dividend yield, VTI has a lower expense ratio, while VEU has a higher dividend yield. Ultimately, the choice between VTI and VEU will depend on your investment goals and risk tolerance.
Investment Strategy and Management VTI vs VEU
When comparing VTI and VEU, it is important to understand their investment strategy and management approach. Both ETFs follow a passive (index-based) approach, seeking to track the performance of their underlying index.
Passive (Index-Based) Approach
A passive approach means that the ETFs do not try to outperform the market but instead aim to match the performance of their underlying index. This approach typically results in lower management fees, making it a cost-effective way to invest in a diversified portfolio of stocks.
Underlying Index and Replication Technique
VTI tracks the CRSP US Total Market Index, which includes nearly 4,000 stocks of varying sizes and sectors. VEU, on the other hand, tracks the FTSE All-World ex-US Index, which covers over 3,000 stocks from developed and emerging markets outside of the US.
Both ETFs use a full replication technique, which means they hold all the stocks in their underlying index. This approach provides investors with a high degree of diversification and minimizes tracking error, which is the difference in performance between the ETF and its underlying index.
In terms of management style, both VTI and VEU are managed by Vanguard, a leading provider of low-cost index funds and ETFs. Vanguard is known for its long-term investment philosophy and focus on low costs, making these ETFs a popular choice for investors seeking a low-cost, diversified portfolio of stocks.
Overall, VTI and VEU offer investors a cost-effective way to gain exposure to a broad range of US and international stocks, respectively. By using a passive approach and full replication technique, both ETFs seek to match the performance of their underlying index while minimizing fees and tracking error.
Risk and Return Metrics
Volatility and Risk Assessment
When it comes to investing, risk and return metrics are important factors to consider. One way to measure risk is by looking at the standard deviation of returns. VTI has a higher standard deviation than VEU, indicating that it is more volatile. This means that VTI may experience larger fluctuations in returns, both positive and negative, than VEU.
Another way to measure risk is by looking at beta, which measures a fund’s sensitivity to market movements. VTI has a beta of 1.0, while VEU has a beta of 0.97. This means that VTI is more closely tied to the overall market, while VEU is slightly less sensitive to market movements.
Historical Returns and Future Outlook
When it comes to past performance, VTI has outperformed VEU over the past decade. According to ETF.com, VTI has a 10-year return of 16.68%, while VEU has a 10-year return of 9.68%. However, past performance does not guarantee future results.
Looking at more recent returns, VEU has outperformed VTI in the past year. According to PortfoliosLab, VEU has a YTD return of 21.83%, compared to VTI’s YTD return of 20.23%. VEU also has a higher 1-year return and 3-year return than VTI.
When considering risk and return metrics, it’s important to keep in mind your investment goals and risk tolerance. While VTI may offer higher returns over the long term, it also comes with higher volatility. VEU may be a better choice for investors who are looking for a more stable investment with slightly lower returns.
Practical Considerations for Investors
When deciding whether to invest in VTI or VEU, there are a few practical considerations to keep in mind.
When to Buy or Sell
The decision to buy or sell VTI or VEU should be based on your investment goals and risk tolerance. If you are a long-term investor who is comfortable with market fluctuations, you may want to hold your investment for an extended period. On the other hand, if you are a short-term investor who is looking for quick gains, you may want to sell your investment when it reaches a certain price point.
Impact of Market Conditions
The market conditions can have a significant impact on the performance of VTI and VEU. Market capitalization, valuation, inflation, and the technology sector are all factors that can affect the performance of these funds. Retail investors should keep an eye on market conditions and adjust their investments accordingly.
One way to reduce the impact of market conditions is to use a strategy that includes both VTI and VEU. This can help to diversify your portfolio and reduce volatility. Additionally, investors should pay close attention to earnings reports and other financial news that can affect the performance of these funds.
