VXUS vs. VTIAX - What's The Difference?

VXUS vs. VTIAX – What’s The Difference?

VXUS and VTIAX both offer excellent exposure to international markets. Since both of the Vanguard funds seem to want to achieve the same thing, I wondered: is there any significant difference between VXUS and VTIAX and which of these two funds is better VXUS vs. VTIAX:

What’s the difference? 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%.

With the differences in structure and built come some other implication for you as a retail investor which we will take a look at here!

VXUS vs. VTIAX – Overview

In this post I’ll explore some of the differences between VXUS and VTIAX in detail. We’ll start by looking at the key facts in terms of their index, fees, assets under management, and holdings.

Further down the line, we’ll analyze some risk metrics like volatility and drawdowns. In the end, I’ll a complete summary of the performance of each fund including a back-test of each portfolio.

What’s The Difference?

VXUSVTIAX
NameVanguard Total International Stock ETFVanguard Total International Stock Index Fund Admiral Shares
IndexMSCI All Country World ex USA Investable Market Index
Expense Ratio0.08%0.11%
IssuerVanguardVanguard
StructureETFMutual Fund
Inception Date1/26/201111/29/2010
AUM$17.5B$21.3B
Holdings7,4687,468
MiniumPrice of 1 share$3,000

Index

The Vanguard Total International Stock ETFs (VXUS) tracks the MSCI All Country World ex USA Investable Market Index. Included are stocks from international stock markets in Europe, North America – namely Canada and Mexico – as well as the Asia-Pacific region.

The Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) does not track any index since it is structured as a mutual fund. Although it technically is not an ETF, it more or less behaves like one. This is because the fund is “passively managed” and not actively traded, which reduces capital gains tax burdens for investors.

The difference in structure is not necessarily of crucial importance to private investors like us. However, with a mutual fund like VTIAX you will have the option to auto-invest in fractional shares.

Expense Ratio

VXUS has an expense ratio of just 0.08% which is extremely low for any international fund. On top of that, Vanguard just recently decreased their fee from 0.09% to 0.08%. Another example of Vanguard actually working for the investor.

VTIAX’s expense ratio is a bit higher at 0.11%. This means for every $10,000 in your portfolio you would be paying roughly $11 in fees for VTIAX and $8 in fees for VXUS. Not really a significant difference in the long term.

Issuer

Both VXUS and VTIAX are issued by Vanguard.

Since day one, Vanguard has been my go-to asset management company. Their financial products are top-notch, offering very low fees and high-quality funds. Their, brokerage service, on the other hand, could use some improvement. (Read: Why Vanguard Is Bad).

Number of Holdings

At $17.5B of net assets VXUS is one of the biggest internationally exposed ETFs on the market. These assets are distributed among more than 7,400 securities which are currently held by VXUS.

VTIAX racks up a similar number at assets under management of more than $21B and the same number of holdings worldwide as VXUS.

In terms of net assets and holdings, there is no significant difference between VXUS and VTIAX. Both offer plenty of liquidity and are easily tradable throughout the year.

Fund Composition

Now, we’ll take a closer look at how both of these funds are composed by examining their equity market capitalization.

VXUS Capitalization

VXUS Capitalization

Small-cap companies make up an almost negligible part of less than 7% of assets. Mid-cap stocks, on the contrary, make up a rather large portion of VXUS’s total market cap at 20%. The remaining three-quarters are naturally filled by international large-cap securities.

VTIAX Capitalization

VTIAX Capitalization

And no surprise here: VTIAX market capitalization looks exactly the same.

This underlines the inherent similarities between both funds. VXUS and VTIAX are essentially siblings: their exposure and environment are identical, just their structure and genes are slightly different.

Regional Allocation

To really drive home this point let’s also compare the regional allocation of both funds. On the left you have VXUS and on the right VTIAX: no difference.

Vanguard Total International Stock Index Fund Admiral Shares
VTIAX - Regional Allocation

Both funds are equally exposed to Emerging Markets at 23.50%, European markets at 39.80% and the Asia-Pacific region at 28.90%. The remaining allocations are distributed between the Middle East, North America and the rest of the world.

Industry Exposure

Generally, when adding funds to your portfolio, you want to make sure that you are not over-exposed to one particular industry or asset class. Since there is no difference in industry exposure between either fund here, we’ll just have a look at one graph:

VXUS/VTIAX - Industry Exposure

VXUS and VTIAX are both dominated by the financial sector whose securities make up close to 20% of total holdings. This is more or less closely followed by Industrials, Healthcare and Consumer Cyclical industries.

On the low end of the spectrum we’ve got Utilities, Real Estate and Energy.

This exposure is quite similar to that of the domestic U.S. market. However, one big difference is that tech companies make up more than 20% in the U.S. market while they just merely pass 10% internationally.

This goes to show how tech-heavy the United States stock market has become.

VXUS vs. VTIAX – Analysis

When assessing the difference and benefits/downsides of any fund, the prudent investor may want to look at the monthly and annual volatility and maximum drawdowns the fund has experienced in its lifetime.

MetricVXUSVTIAX
Volatility (monthly)4.08%4.06%
Volatility (annualized)14.14%14.05%
Downside Deviation (monthly)2.92%2.89%
Max. Drawdown-25.54%-25.45%
US Market Correlation0.840.85

Volatility

Even though both funds are essentially made up of the same stocks, we see that VXUS seems to be more volatile than VTIAX. The difference, however, is minute: 4.08% for VXUS vs. 4.06% for VTIAX.

Likely, the only reason this difference in volatility even exists is because of their different trading patterns. While VXUS can be traded throughout the day, there is no intra-day trading with VTIAX. The latter is simply settled each day. This means investors will also only be able to add or subtract funds from VTIAX once a day.

Drawdowns

The below graph visualizes the ever so small difference in drawdowns between VXUS (-25.54%) and VTIAX (-25.45%):

VXUS vs VTIAX - Drawdowns

As one can tell by looking at the above graph: there is essentially no difference.

VXUS, represented by the blue, is for the most part entirely covered by VTIAX – the red line.

VXUS vs. VTIAX – Performance

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

Annual Returns

In the figure below you’ll see the year-end returns from 2012 to 2020 for both funds. Since both funds are rather young, we, unfortunately, don’t have that much historical data available.

VXUS vs. VIAX - Annual Returns

Interestingly, VXUS seems to perform a bit better in times of economic growth than VTIAX. Likewise, when the stock market turns downward VTIAX is able to sustain less in total losses than VXUS.

We will see in the following section whether this interplay between the ups and downs in the stock market actually makes a difference in the net performance of each fund over time.

Portfolio Growth

For the final part of this comparison, I have back-tested a hypothetical portfolio of $10,000 allocated 100% to VXUS vs. one allocated 100% to VTIAX. And here is the result:

VXUS vs VTIAX - Portfolio Growth

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

That’s a difference of $136 over 8 years. Or $17 per year.

PortfolioInitial BalanceFinal BalanceCAGR
VXUS$10,000$14,039 4.15% 
VTIAX$10,000$14,175 4.28% 

You can also observe this small difference in performance in the CAGR of each fund: VTIAX comes out slightly ahead at 4.28% compared to VXUS at 4.15%.

Conclusion

We have compared some key facts of VXUS and VTIAX, looked at the difference in composition and risk metrics. In the end, it came down to a difference of $17 per year on a $10,000 portfolio. Hardly worth losing any sleep over!

Here’s your takeaway: Choose VXUS or VTIAX; it does not matter. Both are excellent funds with a broad exposure to international markets.

The only real advantage that VTIAX will give you is auto-investing and fractional shares.

But here’s the deal. Pick the right broker and you can have the best of both worlds! M1 Finance enables you to automatically invest a fixed amount every month AND buy fractional shares of ETFs. This way you’ll have the structural benefits of a mutual fund and the tax-efficiency and liquidity of an ETF.

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