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This article was originally published on ETFTrends.com.
There are scores of global exchange traded funds available to investors, many of which use total market methodologies. When considering these products, investors should look for adequate diversification and low fees, among other favorable traits.
Enter the Vanguard Total World Stock ETF (VT) . VT “seeks to track the performance of the FTSE Global All Cap Index, which covers both well-established and still-developing markets,” according to Vanguard.
VT checks the boxes of having a large roster of stocks and a low fee. This Vanguard fund holds over 8,100 stocks and charges just 0.10% per year, or $10 on a $10,000 investment, making it cheaper than 91% of competing strategies. VT is a cap-weighted fund.
“Market-cap-weighting harnesses the market's collective wisdom, effectively mitigates turnover, and saves on trading costs,” said Morningstar in a note out Friday. “It also keeps risk in check by emphasizing multinational firms that are large and stable, while underweighting smaller and more volatile companies. While the fund tilts toward large-cap stocks, its inclusion of small-cap stocks improves diversification.”
Passive, index-based ETFs are some of the cheapest investment tools available to investors as the wrapper may allow anyone to gain access to broad market equity and bond exposure for 10 basis points or less. About 99% of Vanguard’s U.S.-domiciled ETFs fall within the lowest cost quarter of all ETFs.
Inside VT ETF
As a global ETF, VT is heavily allocated to U.S. and each of its top 10 holdings are domestic large caps. In addition to its 56.80% weight to North American stocks, VT devotes 19.30% to European stocks and almost 10% to emerging markets.
“These types of funds provide investors with diversified access to the entire investment opportunity set that active managers select from and make no active bets on specific regions, countries, sectors, or individual stocks,” said Morningstar. “This type of approach essentially free-rides on the collective opinions of active investors.”
VT and rival funds are not likely to deliver to jaw-dropping short-term returns, but over the long-term, VT's low costs give it an advantage.
“The weight of a given stock, country, or sector will therefore be an outcome of their collective judgment. As a result, this type of fund likely won't be a top performer over short periods of time. However, its low fee should give it a long-term edge,” according to Morningstar.
Morningstar has a Silver rating on VT.
For more information on the developing economies, visit our emerging markets category.
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