The Vanguard Total World Stock ETF (NYSEMKT:VT) provides a single-ticker solution for global equity exposure including the United States, whereas iShares Core MSCI Total International Stock ETF (NASDAQ:IXUS) targets only international markets.
Investors choosing between these two funds are deciding between a comprehensive global strategy and a targeted international building block. While both offer massive diversification, VT captures the entire global investable universe, whereas IXUS is designed for those who already have U.S. exposure and want to complement it with non-U.S. equities.
Snapshot (cost & size)
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
VT is slightly more affordable with a 0.06% expense ratio compared to 0.07% for IXUS. However, IXUS offers a significantly higher payout, with a yield gap of 1.37 percentage points over the Vanguard fund.
Performance & risk comparison
What’s inside
The Vanguard Total World Stock ETF aims to mirror the FTSE Global All Cap Index, providing exposure to 9,773 companies across both developed and emerging markets. Its largest positions include Nvidia (NASDAQ:NVDA) at 4.00%, Apple (NASDAQ:AAPL) at 3.59%, and Microsoft (NASDAQ:MSFT) at 2.38%. Because it includes the U.S. market, it is heavily tilted toward technology at 31%, with financial services following at 16%. It was launched in 2008. Vanguard Total World Stock ETF has paid $2.48 per share over the trailing 12 months, which on its recent ~$154.29 share price works out to a 1.6% yield.
In contrast, the iShares Core MSCI Total International Stock ETF tracks an index of large, mid, and small-cap companies exclusively outside the United States, holding 4,335 stocks. Its top holdings include Taiwan Semiconductor Manufacturing (NYSE:TSM) at 4.17%, Samsung Electronics (KRX:005930) at 1.93%, and Sk Hynix (KRX:000660) at 1.64%. This portfolio structure leads to a greater emphasis on financial services at 25% and industrials at 14% compared to its global peer. It was launched in 2012. iShares Core MSCI Total International Stock ETF has paid $2.80 per share over the trailing 12 months, which on its recent ~$92.75 share price works out to a 3.0% yield.
For more guidance on ETF investing, check out the full guide at this link.
What this means for investors
There is a significant difference between global and international funds that investors should be aware of. Global ETFs include U.S. stocks, so they are going to be dominated by U.S. stocks, like VT is. The top three holdings are U.S. companies, the usual Magnificent Seven suspects, and 65% of the portfolio is in U.S. stocks.
My view is, you can get better access to U.S. large-caps in an S&P 500 or Nasdaq 100 ETF.
If you are truly looking for a fund to diversify your portfolio, it might make more sense to invest in an international ETF like IXUS. Its top holdings are Taiwan Semiconductor, ASML Holdings (NASDAQ:ASML), SK Hynix, and Samsung. These names are all in the VT, but they have heavier weighting in IXUS and can nicely complement U.S. large-caps in a portfolio. Plus, you have access to a wide range of international stocks from around the world.
Over the past year, the iShares ETF has outperformed VT. The Vanguard ETF wins on performance over the longer-term, but the long-term forward outlook for international stocks is better than it is for U.S. stocks, according to many leading strategists. For diversification purposes, I would give the edge to the iShares Core MSCI Total International Stock ETF.
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Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Apple, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
Vanguard Global or iShares International: Here is the Better ETF was originally published by The Motley Fool
