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How To Get A Lot Of International Stocks On The Cheap

ETF Professor

There are many benefits of the ongoing fee war in the world of exchange traded funds. One of those perks is that investors no longer have to pay higher than average fees for international equity exposure. Just look at the Vanguard FTSE Developed Markets ETF (NYSE: VEA).

What Happened

VEA has $72.58 billion in assets under management, making the largest international ETF and sixth-largest US-listed of any variety. As a developed markets ETF, VEA competes with MSCI EAFE Index tracking funds, but the Vanguard is significantly larger in terms of components. VEA holds over 3,800 stocks, more than quadruple the number of constituents in the MSCI EAFE benchmark.

“Broad diversification mitigates the impact of the worst performers on the fund's overall performance.” said Morningstar in a recent note. “The target index covers more than 3,800 stocks, and its 10 largest holdings account for only 9% of assets.”

VEA features exposure to 25 countries, including a combined weight of almost 13% to Canada and South Korea, which do not reside in the MSCI EAFE Index.

Why It's Important

Many investors have a home country bias, meaning they are over-allocated to U.S. stocks while their portfolios lack international exposure. A broad ETF like VEA can reduce investors' dependence on domestic stocks while enhancing portfolio diversity.

“Investing in foreign stocks can help diversify a U.S.-centric portfolio,” said Morningstar. “VEA's focus on developed-markets stocks means that it captures roughly 80% of the available foreign market cap. While it does not include stocks from developing nations, the portfolio is still well diversified across stocks, sectors, countries, and currencies.”

Nearly 54% of VEA's holdings are from European economies, indicating the fund is more than adequately positioned to take advantage of a rebound in stocks there or if the European Central Bank decides to unleash more monetary stimulus to bolster the region's slow economies.

What's Next

With its annual fee of just 0.05%, or $5 on a $10,000 investment, VEA is often among the top asset-gathering international ETFs, a trend that will likely continue as investors prize inexpensive ETFs.

“The fund's 0.05% expense ratio is a sizable cost advantage over most of its competitors and should provide a long-term durable advantage,” according to Morningstar.

The research firm has a Silver rating on VEA.

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