Daniel Sotiroff: There’s a wide range of foreign-stock ETFs available to investors today. The great ones not only diversify across stocks and sectors, but also countries and currencies. The best way to organize these ETFs is by the scope of the markets they cover. They range from narrow to broad, based on the number of countries, regions, and currencies that they include. Despite some differences, the three international ETFs for today are all great, low-cost, core holdings that diversify risk and should perform well over the long run.
Great International-Stock ETFs
These exchange-traded funds earn Morningstar Analyst Ratings of Silver or Gold.
- iShares Core MSCI EAFE ETF IEFA
- Vanguard Total International Stock ETF VXUS
- Vanguard Total World Stock ETF VT
First up for today is Silver-rated iShares Core MSCI EAFE ETF, ticker IEFA. It's the narrowest ETF for today because it only holds stocks from foreign developed markets, such as the United Kingdom, Switzerland, and Japan.
This is still a well-diversified portfolio that holds more than 3,000 stocks from 21 overseas countries. But it misses out on a few parts of the foreign market. Notably, it excludes stocks from emerging markets. So, investors that want to invest in these markets would have to do so with a separate emerging-markets ETF, such as iShares Core MSCI Emerging Markets ETF IEMG.
Collectively, the stocks in IEFA capture about 70% of the foreign investable market, so it still passes muster as a core international-stock ETF. And at 7 basis points per year, IEFA's expense ratio is cheap compared to most of its competition.
My next ETF is for those interested in something that's a little more comprehensive. Gold-rated Vanguard Total International Stock ETF, more commonly known by its ticker VXUS, holds shares from nearly 8,000 companies, making it one of the broadest portfolios in Morningstar's foreign large-blend category. It includes stocks from the same countries as IEFA, but it also holds those listed in Canada and emerging markets.
VXUS could easily be paired with a U.S. stock ETF to build a globally diversified portfolio. And the fees on this ETF only add to its attractiveness. Vanguard charges just 7 basis points per year.
Last, but certainly not least, is Gold-rated Vanguard Total World Stock ETF, which trades under the ticker VT. This ETF is truly in a class of its own when it comes to diversification. It has one of the most comprehensive portfolios among any ETF available to U.S. investors. Its 9,000-plus holdings represent a share in almost every publicly traded company on the planet, including small-cap stocks. That makes it a great all-in-one ETF for the stock sleeve of a globally diversified portfolio.
The one thing to keep in mind is that the mix of U.S. and international stocks in VT's portfolio will shift over time as the U.S. and foreign markets take turns outperforming each other. The past 12 years have been a tremendous boon for the U.S. market, so U.S. stocks represented about 60% of this portfolio on Oct. 31. Foreign developed markets such as the United Kingdom and Japan accounted for another 28%, while emerging markets made up the balance.
Vanguard charges just 7 basis points per year for this portfolio, easily making it one of the cheapest ETFs in Morningstar's global large-stock blend category.
Watch “3 Great Specialized ETFs” for more from Daniel Sotiroff.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.