VXUS vs. IXUS - What's The Difference?

VXUS vs. IXUS – What’s The Difference?

If you’re looking for international portfolio exposure, look no further than VXUS vs. IXUS. Both funds can add that much needed global diversification which may actually enhance your overall returns or at least reduce volatility and act as a hedge. VXUS and IXUS are two excellent options. But which of these international ETFs is actually the best?

Overall VXUS outperforms IXUS with a compound annual growth rate of 4.03% vs. 3.87%. Furthermore, VXUS also has a lower expense ratio of 0.08% compared to IXUS’ 0.09%. VXUS holds almost double the number of securities that IXUS holds. Conclusively, VXUS is objectively the better international fund.

Introduction

This post will examine the difference between VXUS and IXUS and highlight some of the key distinctive elements. We’ll start by looking at the basic differences in fund composition such as industry exposure and regional allocation.

Further down the line we’ll also explore each fund’s volatility and maximum drawdowns and – of course – compare the returns for VXUS and IXUS respectively in my 10-year backtest. So, let’s get into it!

VXUS vs. IXUS – Overview

What’s the difference between VXUS and IXUS?

VXUSIXUS
NameVanguard Total International Stock ETFiShares Core MSCI Total International Stock ETF
IndexMSCI All Country World ex USA Investable Market IndexMSCI ACWI ex USA IMI Index
Expense Ratio0.08%0.09%
IssuerVanguardiShares
StructureETFETF
Inception Date1/26/201110/18/2012
AUM$20.7B$20.79B
Holdings7,4554,320
VXUS vs. IXUS – Differences

Index

The Vanguard Total International Stock ETFs (VXUS) tracks the MSCI All Country World ex USA Investable Market Index. A wide of array of international companies are included in Vanguad’s most popular international fund. United States stock, however, are not included.

The iShares Core MSCI Total International Stock ETF (IXUS) tracks the MSCI ACWI ex USA IMI Index. This index follows a similar approach as the one above with one decisive difference: IXUS only holds about half the securities that VXUS does. US stocks are also not included in this fund.

Expense Ratio

VXUS has an expense ratio of just 0.08%. For an international fund of this magnitude, the fees associated with holding the fund for a year are very reasonable. However, compared with SCHF, VXUS still charges about 0.02% more in fees per year. Check out my comparison here between VXUS and SCHF if you’d like to read more.

IXUS has an expense ratio of 0.09%. At first sight, this also seems like a good value proposition: More than 4,000 international stocks at the price of only $9 per year on a $10,000 portfolio. However, compared to VXUS, IXUS is simply more expensive. This difference amounts to around $1 per year more on $10,000.

Although the difference in expense ratio almost seems negligible it can add up through compound interest. A $1 difference in one year can easily turn into several hundred dollars over a lifetime!

Issuer

VXUS is issued by Vanguard. Vanguard is probably my favorite asset management company and the reason is simple: Each Vanguard fund is structured as its own legal entity and all funds collectively own the Vanguard Group. This means that the actual true owners of Vanguard are the investors themselves. Click here to read more about what makes Vanguard so unique!

IXUS is issued by iShares. As the largest global ETF provider iShares has made a name for itself. Their funds are all well-composed and provided at decent expense ratios. However, iShares still is a for-profit company while Vanguard actually operates at cost. In the long term, iShares will be unlikely to compete on fees with a company like Vanguard.

VXUS vs. IXUS – Fund Composition

Both funds have different distributions in market capitalization, industry exposure, and regional allocation. We’ll look at these difference now:

Equity Market Capitalization

VXUS - Market Capitalization
VXUS – Market Capitalization

Almost three-quarters of VXUS is made up of large-cap companies: 74%. The remaining percentages are filled by mid-cap stocks at 20% and small-cap companies make up the small fraction of 6%.

This distribution is similar to the distribution of most developed stock markets. If you compare this to Vanguard’s Total Stock Market ETF (VTI) you’ll see a very similar picture. We’ll later look at some possible reason for this similaritiy.

IXUS - Market Capitalization
IXUS – Market Capitalization

The market capitalization of IXUS looks very much alike: 73% of the fund is made up of large-cap stocks, 20% by mid-cap stocks, and the remaining 7% are small-cap stocks. Thus, the only real difference is that IXUS is a little more exposed to small-cap companies than VXUS.

Whether this difference will actually have an effect on performance is something we will discuss in a later section.

Regional Allocation

VXUS - Regional Allocation
VXUS – Regional Allocation

The regional allocation of VXUS is focused mostly on developed markets: The biggest region at 39.80% is in European companies. This is followed by Asia-Pacific securities at 28.90% and emerging markets at 23.50%.

The middle east, north america and other regions only make up around 7% of the funds total market cap.

IXUS - Regional Allocation
IXUS – Regional Allocation

As with VXUS, IXUS is heavily weighted towards the Asia-Pacific regions with Japan and China alone adding up to over 25% of the fund’s market cap. European stocks from the United Kingdom, France, and Germany follow.

Overall, the picture looks very much alike. IXUS tends to be a bit more exposed to specific countries than VXUS. This mostly stems from the fact that VXUS simply holds more securities in total leading to a greater diversification.

Industry Exposure

Next, we’ll examine the exposure of VXUS and IXUS to various industry sectors globally.

VXUS - Equity Sectors
VXUS – Equity Sectors

The financial sector takes up around 17% of the VXUS’ total capitalization. After that, we have industrials at 12.5%, technology at 11.5%, and consumer cyclical at 11%. Surprisingly here is the fact that industrials make up such a large share of sectors, especially since most developed countries tend to see a reduction in their industrial sector.

IXUS - Equity Sectors
IXUS – Equity Sectors

For IXUS the picture looks fairly similar: the financial sector dominates the fund at close to 17%. Industrials and technology are around 12% and consumer cyclical comes in third place. However, overall both funds are fairly evenly weighted among the sectors.

Compared to the domestic market distribution VXUS and IXUS offer a far more balanced sector exposure. The differences here between the two funds in question are certainly of little importance. But, getting a complete picture of each fund’s industries is vital to having a well-balanced portfolio.

VXUS vs. IXUS – Analysis

As the saying goes: the first rule of investing is never to lose money. With that in mind let’s take a look at the potential risks that each fund is exposed to. We’ll do this by comparing metrics such as volatility and drawdown.

MetricVXUSIXUS
Volatility (monthly)3.99%3.90%
Volatility (annualized)13.82%13.52%
Downside Deviation (monthly)2.83%2.77%
Max. Drawdown-25.54%-25.08%
US Market Correlation0.850.85
VXUS vs. IXUS – Risk Metrics

Volatility

VXUS has an annual volatility of 13.82% (3.99% monthly). This value is fairly normal when comparing 100% stock portfolios. One of the reasons bonds are part of most well-balanced portfolios is to mitigate excessive volatility. At 13.82% VXUS is actually less volatile than the domestic market.

IXUS has an annual volatility of 13.52% (3.90% monthly). Perhaps surprisingly IXUS is less volatile than VXUS. I say surprisingly because VXUS is, in fact, more diversified than IXUS. However, we see the same phenomenon when comparing two other similar ETFs, VTI and VOO. Also in this case, the fund with less holdings – VOO – ends up being less volatile than VTI.

Drawdowns

VXUS vs. IXUS - Drawdowns
VXUS vs. IXUS – Drawdowns

The drawdowns for VXUS and IXUS in my portfolio backtest looked almost identical. Both funds experienced their worst drawdowns of -20% in 2016 and most recently in 2020. In this most recent period VXUS also experienced its maximum drawdown of -25.54% compared to IXUS’ -25.08%.

The difference in drawdown most likely stems from the difference in composition and the way Covid-19 affected difference economic environments around the world.

VXUS vs. IXUS – Performance

As with every investment, the most significant metrics are likely to be the performance of the asset over time. In this section, we will look at the annual returns for VXUS and VTI, and then perform a back-text of $10,000 if invested at each fund’s initialization.

Annual Returns

VXUS vs. IXUS - Annual Returns
VXUS vs. IXUS – Annual Returns

Annual returns for VXUS paint a mixed picture. Although most years still ended with a positive balance, there were several years in 2014-2016 when returns seemed to dwindle towards 0. Essentially, the same goes for IXUS.

However, IXUS has also fallen behind VXUS growth a couple of instances and has not managed to recover from losses quite as smoothly. For instance in 2013 VXUS clearly outperformend IXUS. In other years it is less obvious but the overall picture looks similar for all years.

Portfolio Growth

VXUS vs. IXUS - Portfolio Growth
VXUS vs. IXUS – Portfolio Growth
PortfolioInitial BalanceFinal BalanceCAGR
VXUS$10,000$13,492 4.03% 
IXUS$10,000$13,335 3.87% 
VXUS vs. IXUS – Backtest Results

The final part of this VXUS vs. IXUS comparison if my $10,000 portfolio backtest. Unfortunately, since both funds are fairly young there is only limited testing data available. But we’ll make the most of it!

A $10,000 investment in VXUS would have resulted in $13,492. This equates to a compound annual growth rate (CAGR) of 4.03%. To say this is a good return on investment would be an exaggeration. In fact, VXUS has barely outperformed the domestic Total Bond Market ETF (BND).

A $10,000 investment in IXUS would have resulted in $13,335. This equals a CAGR of 3.87%. Over the past decade, IXUS has performed even worse than VXUS. A return of less than 4% for a global stock ETF is less than desirable.

Overall, however, the backtest yielded quite clear results: VXUS is a little more volatile than IXUS but VXUS also beats IXUS in returns most years and delivers a CAGR of nearly 20 basis points higher than IXUS.

Conclusion

Conclusively, VXUS and IXUS are more similar than they are different. The only true differences are revealed in the number of holdings and the expense ratio. As a result of these distinctions, VXUS and IXUS also perform differently:

VXUS yielded higher returns in most years and a overall higher growth rate than IXUS.

However, given the poor returns of both funds over the past 10 years, the real question perhaps then becomes: should you include international funds at all in your portfolio?

For most investors this questions should be answered with a resounding yes. There have been several studies conducted by Vanguard and other asset management companies proving time and time again that international exposure most certainly mitigates risks of a home bias as well as opens up the possibility of enhanced overall returns.

With that said, VXUS is my personal choice for international exposure.

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