Key Morningstar Metrics for Vanguard Total International Stock ETF
- Morningstar Medalist Rating: Gold
- Process Pillar: High
- People Pillar: Above Average
- Parent Pillar: High
Vanguard Total International Stock ETF VXUS 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 more than 8,000 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 thousands of stocks, with its 10 largest positions regularly accounting for around 10% of assets. Single stocks rarely represent more than 2% of the portfolio. Some of this fund’s largest holdings are Asia-listed conglomerates with diversified revenue streams and robust competitive advantages.
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 around one tenth of its portfolio to these stocks, while this fund is usually closer to double that. 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 have hurt the fund’s category-relative performance in recent years.
Low fees have helped neutralize the negative effect of emerging-markets stocks. The ETF returned 7.8% annualized for the five years through September 2024, outpacing its average category peer by 20 basis points annualized. Volatility was slightly higher, but risk-adjusted returns still edged out the category average. Going forward, investors should expect the strategy to do well when foreign stocks do well.
Vanguard Total International Stock ETF: Performance Highlights
Much of this fund’s category-relative edge traces back to its low fee. The ETF returned 5.5% annualized for the last 10 years through September 2024, bettering the category norm by 31 basis points.
While the fund’s lower fee provides a durable advantage, its country and regional allocations can drive category-relative performance from time to time. For example, the fund’s hefty allocation to emerging markets has hurt category-relative performance in recent years as those stocks have underperformed lately. Over the long term, though, its low fee and superior diversification should shine through any short-term hiccups.
This fund does not hedge currency risk. This has mostly hampered performance since the US dollar has been stronger than the foreign currencies represented in this portfolio. However, the advantages and disadvantages of currency hedging come in waves. Over the long run, the impact of foreign exchange rates on total return tends to wash out.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
