International stock ETFs are an essential part of any globally-oriented modern portfolio. Vanguard and Schwab offer an enticing option with VXUS vs SCHF. Both funds provide broad exposure to international markets. But which of the two is actually composed better and which offers the higher returns? VXUS or SCHF?
VXUS has an expense ratio of 0.08% while SCHF only charges 0.06%. SCHF is also more weighted towards large-cap stocks than VXUS. Both funds are heavily exposed to the financial services sector. However, overall, SCHF slightly outperforms VXUS with a compound annual growth rate of 5.73% vs. 5.63%.
In this post, I’ll examine the precise differences between VXUS and SCHF. We’ll look at the their expense ratio, index, issuer and total holdings. In the second part, we’ll also take a closer look at each fund’s composition in terms of market capitalization and industry exposure.
This knowledge will then allow us to understand the slight differences in volatility, drawdown and performance.
VXUS vs. SCHF – Overview
What’s the difference between VXUS and SCHF?
|Name||Vanguard Total International Stock ETF||Schwab International Equity ETF|
|Index||MSCI All Country World ex USA Investable Market Index||FTSE Developed ex US Index|
The Vanguard Total International Stock ETFs (VXUS) tracks the MSCI All Country World ex USA Investable Market Index. Ex USA means that domestic stocks are not included at all in this index. It is solely made up of international securities from Europe, Asia-Pacific and America.
The Schwab International Equity ETF (SCHF) tracks the FTSE Developed ex US Index. The index also offers broad exposure to global stocks, however, mostly to large-cap companies. For that reason, SCHF only holds about 1,500 securities.
As mentioned above, both funds track indices with similar aims. But VXUS is a whole lot more diversified holding more than 7,000 securities while SCHF only holds a fraction of that.
VXUS has an expense ratio of just 0.08%. For the number of stocks this ETF holds the fees associated with expenses are very low. Vanguard just recently reduced fees on several of their most well-known funds and it is not unlikely that this fee reduction will also extend to VXUS at some point.
SCHF has an expense ratio of 0.06%. There are not many international stock ETFs that have a lower expense ratio than SCHF. The number of securities SCHF holds may explain the differences in fees between VXUS and SCHF.
In total, the difference in expense ratio between VXUS and SCHF is 0.02%. This will amount to about $2 per year in a $10,000 portfolio. Of course, on a per-year-basis, this does not seem overwhelmingly much but with compound interest applied the differences can really add up over a lifetime.
VXUS is issued by Vanguard. Vanguard is an excellent asset management company that works for investors not against them. If you have been reading any of my other ETF comparisons you know that I’m a fan. If you’re interested to learn about what makes Vanguard so great, I’d recommend you check out this article I wrote a while back.
SCHF is issued by Charles Schwab. Schwab has been around for a long time now and is considered one of the most trusted and secure investment providers out there. While they cannot compete with Vanguard on fees in most cases (since Vanguard operates at-cost) they certainly have managed to offer well-packaged financial products at decent expense ratios.
The biggest difference between VXUS and SCHF – as alluded to above – is the number of holdings. VXUS holds close to five times as many securities as SCHF. This additional diversification can have a massive impact on your portfolio both in terms of overall performance and stability.
VXUS vs. SCHF- Fund Composition
In this section, we will look at how VXUS and SCHF are composed in terms of their market capitalization. Both funds hold large-, mid- and small-cap companies but the distribution varies quite a bit.
Equity Market Capitalization
Almost three-quarters of VXUS is made up of large-cap companies at 74%. The remainder is mid-cap companies at 20% and small-cap stocks at 6%. This distribution is fairly standard considering the market cap of most developed entire stock markets.
Interestingly, this composition closely resembles that of the entire U.S. stock market. We will see in the industry exposure section whether this also holds true for the types of companies VXUS holds.
The picture for SCHF does not look much different, however, there are some distinctions: 80% of SCHF is made up of large-cap companies. Mid-cap stocks make up 19% which leaves only 1% to be allocated to small-cap companies.
Thus, SCHF acts more like a global S&P 500 fund than a total market fund.
The regional allocation of VXUS and SCHF is something you might want to pay attention if you already hold other international exchange-traded funds. In order to not be over-exposed to a certain region of the world.
European stocks make up the largest portion of VXUS at 39.80%. The Asia-Pacific region and emerging markets are close seconds at around 30% each respectively. Ex-USA North American companies make up another 6.3%.
The allocation of VXUS probably does not come as a big surprise here. In addition, to this broad global exposure Vanguard also offers other ETFs targeting specific world regions such as emerging markets.
SCHF’s holdings are allocate to Japanese companies to a significantly larger degree: Almost one-quarter of all securities SCHF holds are Japanese. This is followed by the United Kingdom, Switzerland, and Germany.
Compared to VXUS, SCHF is even heavier weighted toward European stocks and first world countries. The Asia-Pacific region and North America only play a secondary role here. SCHF barely holds any emerging market securities.
The following two charts show the industry exposure for both VXUS and SCHF.
Companies in the financial sector dominate VXUS. There are several contenders for the second place, among these: consumer cyclical, consumer defensive, healthcare, industrials, and technology.
When comparing this distribution with the domestic market it becomes apparent that industrials play a much bigger role internationally than in the United States. Domestically, they only make up a tiny fraction of the market by market capitalization.
SCHF is equaly exposed to more or less the same industry sectors: financial services, consumer defensive, healthcare, industrials, and technology. However, industrials here make up an even bigger segment of the fund at around 14%.
What stands out in both funds is the diminished exposure to tech companies that have taken over the U.S. economy. Thus, VXUS and SCHF will not only give you exposure to global companies but also to a variety of different sectors.
VXUS vs. SCHF– Analysis
In the analysis part of this comparison, we’ll mostly focus on potential risks for your portfolio. This means that volatility and maximum drawdowns will be the most important considerations for long-term sustainable growth.
|Downside Deviation (monthly)||2.87%||2.77%|
|US Market Correlation||0.84||0.85|
VXUS has an annual volatility of 14.13% (4.08% monthly). This value represents the same value as U.S. focused ETFs. Compared to bond funds the volatility appears extraordinarily high at close to 15% vs. 3.5%.
SCHF has an annual volatility of 13.56% (3.92% monthly). SCHF is simply less volatile than VXUS. The obvious reason for this is the difference in fund composition: SCHF is to a larger degree comprised of large-cap companies that tend to be more stable in general.
We can observe a similar phenomenon when comparing Vanguard’s Total Stock Market ETF (VTI) vs. Vanguard’s S&P 500 ETF (VOO). VOO appears less volatile and even seems to yield slightly higher returns than VTI.
Starting in January of 2012 we see the portfolio drawdowns of VXUS vs. SCHF represented with blue and red lines respectively. Overall, the picture looks pretty much the same for both funds:
The worst recent years for international stocks were 2016 and 2020. Both times the funds saw drawdowns of -20%. Even already in mid-2012, both funds lost nearly 15% of their value. Given the increased volatility of both funds, these values are to be expected.
VXUS vs. SCHF – Performance
All of the above facts will now culminate in the ultimate showdown between these two international funds: performance. So, how are the differences in fund composition reflected in their performance? And what about annual returns?
Since 2012, both funds experiences several years with returns north of 20%; an excellent record for a global ETF. However, some years the funds also yielded barely anything – such was the case in 2014-2016 – or even ended the year with a negative balance; 2018 and 2020 were such years.
In some instances, SCHF seems to outperform VXUS significantly such as in 2013 and 2016, but then again, there are other times when VXUS has managed to incur substantially less losses annualy – as in 2014 and most recently in 2020.
|Portfolio||Initial Balance||Final Balance||CAGR|
The above table is the result of a backtest over the given time frame. This test assumes a starting balance of $10,000 with all gains and distributions reinvested. The result is not entirely decisive:
A $10,000 investment in VXUS would have resulted in a final balance of $16,003. This equates to a compound annual growth rate (CAGR) of 5.63%. Compared to the domestic returns we have experienced over the past years this is not nearly as impressive. However, the fund does outperform the global and national bond market by a significant margin.
A $10,000 investment in SCHF would have resulted in a final balance of $16,137. This equals to a CAGR of 5.73%. Thus, the between VXUS and SCHF in CAGR is a measly 0.1%. It can be questioned if this result is even significant given the fairly short testing time frame available.
Conclusively, both funds are well-designed for international exposure without U.S. stocks. VXUS tends to represent the entire market more than SCHF which holds more select large-cap companies worldwide.
Although the backtest showed SCHF outperforming VXUS, this does not necessarily imply that SCHF is definitively the better fund. The most important limiting factor here is the relatively short time frame of only 8 years of data that we have to compare.
A significant point for SCHF, however, is the expense ratio. Investing in SCHF is simply less expensive than investing in VXUS. Of course, this savings in fees comes at a price: SCHF holds far fewer securities than VXUS does.
So the real question is: is the additional diversification and exposure to small-cap companies in VXUS worth the extra 0.02% in fees?
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
2) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
3) If you are interested in crypto, check out Coinbase. I've started allocating a small amount of assets to the growing crypto space and Coinbase has just been a breeze to use. Once you register, make sure to also open a Coinbase Pro account to buy crypto at the lowest fees on the market (just 0.1%!).