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Go Global With This Big Vanguard ETF

ETF Professor

Investors looking to nibble at ex-U.S. equities without the commitment of an international exchange traded fund can consider global funds, which typically feature large exposure to domestic stocks.

The Vanguard Total World Stock ETF (NYSE: VT) is a broad, cost-efficient option for investors looking for some international exposure while still maintaining a substantial U.S. profile.

What Happened

The $11.8 billion VT is a cap-weighted fund that holds over 8,100 stocks, giving it substantial coverage of overall global equity market capitalization. Funds in VT's category are typically cap-weighted. Though prosaic, the methodology has some advantages with large funds like VT.

“Market-cap-weighting harnesses the market's collective wisdom, effectively mitigates turnover, and saves on trading costs,” Morningstar said in a recent note. “It also keeps risk in check by emphasizing multinational firms that are large and stable, while underweighting smaller and more volatile companies.”

While VT features exposure to mid- and small-cap stocks, the fund is dominated by large- and mega-caps, such as Apple Inc. (NASDAQ: AAPL) and Microsoft Corporation (NASDAQ: MSFT).

Why It's Important

Broad funds such as VT, regardless of geographic emphasis, are typically aimed at long-term investors. That said, VT's long-term performance does not necessarily exceed that of the category average, but the Vanguard funds has some other perks.

“The fund's long-term performance has not stood out against its peers, with total and risk-adjusted returns that were similar to the category average between July 2008 and June 2018,” according to Morningstar. “Its active competitors were able to take advantage of superior stock selection and earned higher returns by taking on more risk.”

One of VT's obvious benefits is cost. The fund charges just 0.10 percent per year, the equivalent of $10 on a $10,000 investment. That makes VT cheaper than 91 percent of rival funds.

What's Next

“This global portfolio eliminates the need to hold separate U.S. and international stock funds. While the split tends to hover around 50/50, it can and has diverged in the past,” said Morningstar.

In addition to its U.S. exposure, VT allocates about a third of its weight to Europe and Asia-Pacific markets while emerging markets represent almost 10 percent of the portfolio.

Morningstar has a Silver rating on the ETF.

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Latest Ratings for VT

Date Firm Action From To
Oct 2014 Stifel Nicolaus Upgrades Hold Buy

View More Analyst Ratings for VT
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