Why Vanguard Total International Stock ETF Has an Advantage in 2023 and Beyond

Vanguard Total International Stock Index captures nearly all of the international stock market for a low fee. Most share classes earn a Morningstar Analyst Rating of Gold, including the exchange-traded fund VXUS, while the more expensive investor share class earns a Silver rating.

The fund tracks the FTSE Global All Cap ex US Index. It targets small-, mid-, and large-cap stocks from most overseas markets, pulling in almost 8,000 names. The final portfolio weights its holdings by market cap, which harnesses the market’s collective wisdom of each stock’s intrinsic value. This approach also helps mitigate turnover and the associated trading costs. The market tends to accurately price stocks over the long term. From time to time, it may chase stocks or sectors that are in vogue. This potentially leaves the portfolio exposed to overvalued parts of the market.

Diversification is a strength of this portfolio owing to the expanded scope of its target index. Its 10 largest holdings account for just 9% of its assets, with no single position weighing in at more than 2%. This fund includes emerging-markets stocks and thereby captures the entire opportunity set available to active managers. Long-term performance should benefit from its superior diversification.

Portfolio composition largely reflects the typical foreign large-blend Morningstar Category peer, and low fees for each share class should promote strong category-relative performance. However, its advantage has been middling. Each share class, including the priciest investor shares, narrowly beat the category average over the trailing 10 years ended October 2022, with comparable volatility. Risk-adjusted returns were nearly identical for the period. But low fees and superior diversification put the fund in a position to expand its long-term advantage.

Key Proprietary Morningstar Metrics for Vanguard Total International Stock ETF

Morningstar Analyst Rating: Gold

Process Pillar: High

People Pillar: Above Average

Parent Pillar: High

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