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ETF Specialist

An Extensive Developed-Markets Fund

Diversification and low fees are a compelling combination.

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Foreign stocks are a great way to diversify a U.S.-focused portfolio as they provide access to a wider opportunity set and don't always move in the same direction as the U.S. market. A broad foreign developed-markets fund, like Vanguard FTSE Developed Markets ETF (VEA), captures a majority of the overseas market while diversifying across a wide range of countries and currencies. VEA further builds on its diversification benefits by including small-cap stocks. Its low fee and outstanding index-tracking performance add to its appeal and underscore its Morningstar Analyst Rating of Silver.

VEA tracks the FTSE Developed All Cap ex US Index, which covers stocks of all sizes from 23 foreign developed markets, including Canada and South Korea. It weights its holdings by market capitalization, an approach that benefits investors by capturing the market's consensus opinion of each stock's value while mitigating turnover. Markets usually get long-term prices correct, but they occasionally make mistakes. Investors can drive valuations up if they get excited about a particular area of the market, and market-cap-weighting will increase the fund's exposure to it.

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Daniel Sotiroff does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.