VXUS Review

VXUS Review 2020: Is Vanguard’s Total International Stock ETF worth it?

VXUS is one of the more popular international ex-US ETFs on the market. It is made up of a diverse set of securities and gives investors international exposure at low fees. This makes VXUS ideal for portfolio diversification and nation risks. But how well did VXUS actually perform? And how does it fare against its competitors?

The Vanguard Total International Stock ETF (VXUS) holds more than 7,000 international securities and has an expense ratio of 0.08%. It is composed mainly of large-cap European, Pacific and Emerging Markets stocks. VXUS has an annual volatility of 14.16% and a maximum drawdown of more than 25% over the past decade. The compound annual growth rate is 4.72% per annum to date.

Introduction

In this VXUS review, we’ll look at a couple of key aspects of the fund. First, we’ll examine some basic facts such as expense ratio, and composition. We’ll also see what industries VXUS is most exposed and which markets are most weighted in asset allocation.

In the later chapter of this review, we will dive into some risk metrics and analyze VXUS’s performance of the past decade. In the end, there will also be a head-to-head comparison between VXUS and some of its competing products.

VXUS Review: Overview

VXUS
NameVanguard Total International Stock ETF
IndexMSCI All Country World ex USA Investable Market Index
Expense Ratio0.08%
IssuerVanguard
StructureETF
Inception Date1/26/2011
AUM$20.7B
Holdings7,455
VXUS – Overview

Index

The MSCI All Country World ex USA Investable Market Index is tracked by Vanguard Total International Stock ETFs (VXUS). It includes stocks from the international capital markets in Europe, North America – Canada and Mexico in particular – as well as the Asia-Pacific region.

VXUS is aimed at global exposure minus domestic (U.S.) stocks and with more than 7,000 companies from all over the world it’s doing a pretty job at that.

Expense Ratio

VXUS has a mere 0.08 percent cost ratio which is incredibly small for any foreign fund. In addition, Vanguard recently reduced the premium from 0.09% to 0.08%. Another example that Vanguard actually does work for the investor.

Issuer

VXUS is issued by Vanguard.

From day one Vanguard was my go-to asset management business. They deliver top-notch financial products, high-quality funds, and very small fees. On the other hand, some changes may be made to their brokerage service.

Other Facts

VXUS is one of the biggest international ETFs on the market with net assets of $17.5B. These assets are distributed among over 7,400 securities that VXUS currently holds.

VXUS Review: Fund Composition

In this section, we’ll look at the ETFs composition: the distribution of small-, mid- and large-cap companies as well the global market allocation. Furthermore, we’ll see how these distributions affect the funds exposure to various industrial sectors.

Equity Market Capitalization

VXUS - Market Capitalization
VXUS – Market Capitalization

Small businesses make up an almost insignificant portion of less than 7 per cent of assets. In comparison, mid-cap stocks make up a relatively significant portion of the overall market cap of VXUS at 20 per cent. The remaining three-quarters was obviously loaded up with large-cap international securities.

Regional Allocation

VXUS - Regional Allocation
VXUS – Regional Allocation

VXUS is exposed to 23.50 percent of emerging markets, 39.80 percent of European markets, and 28.90 percent of Asia-Pacific. The remaining shares are spread across the Middle East , North America, and the world.

Industry Exposure

VXUS - Industry Exposure
VXUS – Industry Exposure

In general, you want to make sure that you are not over-exposed to a single sector or asset class when adding funds to your portfolio.

VXUS is dominated by the financial sector, with shares comprising about 20 per cent of overall assets. The Industrials, Agriculture, and Consumer Cyclical markets follow this more or less closely. We have Utilities, Real Estate and Power at low end of the continuum.

VXUS Review: Analysis

When evaluating the difference and advantages and downsides of any investment, the cautious investor will want to look at the monthly and annual volatility and cumulative drawdowns the investment has encountered over its lifetime.

MetricVXUS
Volatility (monthly)4.09%
Volatility (annualized)14.16%
Downside Deviation (monthly)2.90%
Max. Drawdown-25.54%
US Market Correlation0.84
VXUS vs. VTI – Risk Metrics

Volatility

VXUS has an annual volatility of 14.16% (4.09% monthly).

We also see higher-yielding assets typically being more volatile. In addition, VXUS is much more flexible than other domestic ETFs, and should therefore be less volatile in principle. Yet it is not. Both domestic ETFs are less risky than VXUS, such as VTI, SCHB, or ITOT.

The above-mentioned fact simply shows the strength and stability of the U.S. economy over the past 10 years compared to most other countries worldwide but particularly Europe.

It is worth remembering here that, following the market crash of 2008/2009, stock market values as a whole have been even more volatile. This mainly relates to the rise in financial instrument trading.

Drawdowns

VXUS - Drawdowns
VXUS – Drawdowns

The graph above visualizes VXUS drawdowns over the past eight years (since its inception). Particularly in the past years of the 2015-2017 U.S. economic boom, VXUS is still experiencing strong drawbacks.

Another fact that goes to show how well the U.S. market recovered from the 2008 crash while most of the global markets were unable to feather the blow (see VXUS vs. VTI below).

VXUS Review: Performance

As with any investment, the asset ‘s output over time would likely be the most important metrics. We will look at the annual returns for VXUS in this segment, and then conduct a back-text of $10,000 if invested at the initialization of the fund.

Annual Returns

You can see the year-end returns for VXUS from 2012 through 2020 in the figure above. Unfortunately, we don’t have that much historical data available as the fund is very small.

The past years have definitely been a mixed bag for VXUS in terms of yearly returns. While it performed very well in 2017 and even 2019, there have been several years in between where output was either not able to keep up with the S&P 500, or even negative.

The global-domestic-difference is accentuated even further in times of general economic recession and stagnation. Looking at the years 2018 and 2020, we see that VXUS has lost substantial value.

Portfolio Growth

VXUS - Portfolio Growth
VXUS – Portfolio Growth
PortfolioInitial BalanceFinal BalanceCAGR
VXUS$10,000$14,741 4.72% 
VXUS – Backtest Results

Below, for the final part of this VXUS analysis, I re-tested a hypothetical portfolio of $10,000 allocated 100% to VXUS. So this is the result:

An investment of $10,000 in VXUS would have given a final balance of $14,741 today. This is equal to a 4.72 percent compound annual growth rate (CAGR). Overall, this is not bad, but you could actually achieve a similar annual return simply with a pure bond portfolio (see: BND vs. BNDX).

VXUS vs. Other Funds

We’ll briefly compare VXUS with the most common competitors out there in this final segment, and review the differences. At the end of each section I’ll link the corresponding full article I’ve written about each contrasting fund.

VXUS vs. VEU

Both international funds provide a very similar overall return. The main difference between VXUS vs. VEU is the number of holdings and the regional allocation of assets. Furthermore, VXUS is a lot younger than VEU so there is less historical data available to compare past performance.

Nonetheless, both of these funds provide excellent exposure to the international non-US market so they are worth having a closer look at.

VXUS vs VEU - Portfolio Growth
VXUS vs VEU – Portfolio Growth

Once it comes to overall results the discrepancies between VXUS and VEU almost disappear into obscurity. This may be the case that VXUS is marginally ahead of VEU at one point in time and the other way around which does not affect your returns in the long term.

Essentially, VXUS and VEU perform the same. As a conservative long-term investor, this basically means that you can think less about the exact foreign fund you ‘re going to pick. Follow a clear three-fund portfolio strategy – preferably with a creative commission-free broker such as M1 Finance – and you will be set to everything!

VXUS vs. VTI

The main difference between VXUS and VTI is their aim. VXUS is an ETF that gives investors broad exposure to global stock markets, while VTI is focused only on U.S. securities. VXUS has a higher expense-ratio at 0.08% compared to VTI’s 0.03%. In terms of performance, VTI has historically yielded significantly higher returns with a compound annual growth rate of 13.04% than VXUS at 4.72%.

VXUS vs. VTI - Portfolio Growth
VXUS vs. VTI – Portfolio Growth

As we have seen, the main difference between VXUS and VTI is their target market. It remains difficult to simply compare the individual funds without taking into account the global economic development.

But both, the funds’ metrics as well as the economic aspects give VTI a significant edge. The fund itself simply has fewer fees. On top of that, the U.S. economy strengthened and grown over the past years far more than the average European or Asian economy.

For us as investors one question, however, remains: how much – if any – of our funds should be allocated to VXUS?

Despite the meandering performance of VXUS I still think it is prudent to allocate a certain percentage of funds to international exposure. After all, the U.S. economy has become a global economy and is so intertwined with Europe, Asia, and South America, that an isolated just does not make sense anymore.

Furthermore, future developments might differ from the past 10 years and Europe’s or Asia’s markets might come back stronger than before. In any case, it seems wise to be prepared for any number of future circumstances.

As investors, we can hedge these risks through diversification. However, whether you ultimately allocate 10, 15, or 20% to international markets remains your personal decision.

VXUS vs. VTIAX

The main difference is the way the funds are structured. VXUS is an exchange-traded fund (ETF), while VTIAX is a mutual fund. VTIAX also has a higher expense-ratio at 0.11% compared to VXUS 0.08%. In terms of performance, VXUS has slightly lower returns with a compound annual growth rate (CAGR) of 4.15% vs. VTIAX’s 4.28%.

VXUS vs VTIAX - Portfolio Growth
VXUS vs VTIAX – Portfolio Growth

You’d ended up with $14,039 at the end of the time period from 2012 to present if you had invested everything in VXUS. In the same time frame, the same investment in VTIAX would have yielded $14,175.

That is an 8-year difference of $136. Or 17 Dollars a year. At the end, on a portfolio of $10,000, the gap between VXUS and VTIAX is down to $17 a year. Hardly worth worrying over!

My conclusion is this: pick VXUS or VTIAX; it doesn’t matter. These are outstanding funds, with broad international visibility. The only possible advantage VTIAX gives you is the auto-investment and fractional shares.

VXUS vs. SCHF

VXUS has a cost ratio of 0.08% while SCHF costs just 0.06%. Even SCHF is weighted more towards large-cap stocks than VXUS. Both funds are exposed extensively to the financial services industry. Overall, however, SCHF outperforms VXUS marginally with an annual compound growth rate of 5.73% vs. 5.63%.

VXUS vs. SCHF - Portfolio Growth
VXUS vs. SCHF – Portfolio Growth

Conclusively, both funds are well-designed without U.S. inventories for foreign exposure. VXUS aims to represent more of the global market than SCHF, which houses more listed large-cap companies around the world.

Although the backtest has shown SCHF to outperform VXUS, this does not necessarily mean that SCHF is certainly the best investment. The most important limiting factor here is the comparatively short time span of only 8 years of data to be compared with.

However, an important factor for SCHF is the expenditure ratio. It is actually cheaper to invest in SCHF than to invest in VXUS. This reduction in fees inevitably comes at a price: SCHF keeps far less securities than VXUS does.

Read: VXUS vs. SCHF – Which International ETF Is Better?

VXUS vs. IXUS

Overall VXUS exceeds IXUS with an annual compound growth rate of 4.03% vs. 3.87%. In comparison, VXUS also has a lower cost ratio of 0.08% compared to 0.09% of IXUS. The number of shares owned by IXUS is almost double that of VXUS. Conclusively, VXUS is the stronger foreign fund, critically.

VXUS vs. IXUS - Portfolio Growth
VXUS vs. IXUS – Portfolio Growth

To sum up, VXUS and IXUS are more related than they are otherwise. The only true variations in the number of holdings and the cost ratio are reported. Both VXUS and IXUS behave differently as a result of these distinctions:

In most years, VXUS yielded higher yields, and a higher overall growth rate than IXUS.

However, considering both funds’ weak returns over the past 10 years, maybe the real question then becomes: do you include foreign funds in your portfolio at all?

These questions should be answered with a resounding YES for most investors. Vanguard and other wealth management firms have performed numerous studies showing time and time again that foreign exposure most definitely mitigates the risks of a home bias as well as opening up the prospect of improved total returns.

Having said that, VXUS is my personal preference for international exposure.

Read: VXUS vs. IXUS – What’s The Difference?

Conclusion

When it comes to international stock ETFs, VXUS is still first of its class. The fund’s broad exposure and low expense ratio make an ideal fit for any investor looking to diversify internationally.

Even compared to its most fierce competitors such as VEU, VXUS can hold its ground. VTIAX is the simple option if you prefer mutual funds but does not yield any real advantage over VXUS in terms of performance.

Compared to U.S. focused funds, however, VXUS has performed rather poorly over the past years. Keep in mind, that past performance is not guaranteed to continue in the future. While U.S. economic metrics continue to look strong VXUS will be unable to keep up.

But hedging your domestic investments with international exposure is surely a wise move. The exact percentage of allocation is up to you of course. If you follow the traditional 3-fund portfolio strategy, an allocation of anywhere from 8-24% to VXUS should be plenty diversified without sacrificing returns.

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