Vanguard Total International Stock Index Provides an Expansive Portfolio For a Low Fee

Vanguard Total International Stock Index VTIAX has a market-cap-weighted portfolio that holds nearly every stock in the international market. Its low fee and expansive portfolio make it one of the best international stock funds available.

The fund tracks the FTSE Global All Cap ex US Index. It targets small-, mid-, and large-cap stocks from international emerging and developed markets, pulling in around 8,500 names. The final portfolio weights its holdings by market capitalization. Market-cap weighting is an efficient way to size holdings because it harnesses the market’s consensus opinion of each stock’s relative value. Stocks that grow in size take up a larger share of the portfolio, while shrinking companies that may be struggling will have less importance.

Diversification is a strength of this portfolio, owing to its expansive target index. The fund holds over 8,500 stocks, with its 10 largest positions accounting for just 9% of assets. No one position accounts for more than 1.5% of the allocation. Some of this fund’s largest holdings are Asia-listed conglomerates like Tencent, Samsung, and Toyota.

Including emerging-markets stocks widens the scope of this fund relative to some peers. The average fund in the foreign large-blend Morningstar Category allocates less than 10% of its portfolio to these stocks, while this fund typically weights them closer to 20%. This larger allocation may give the fund a leg up, since emerging-markets stocks historically have paid for their higher volatility with strong returns during market rallies. Those stocks’ recent struggles, though, have hurt the fund’s category-relative performance in recent years.

Low fees neutralize the negative effect of emerging-markets stocks. In the 10 years through October 2023, this fund’s cheapest share class outpaced the average peer by 33 basis points annually. Volatility was slightly higher, but risk-adjusted returns also looked favorable relative to the category average.