Last Updated Jan 31, 2011 9:49 PM EST
- It's easily the broadest international ETF owning more than 6,000 securities over 44 countries, following the MSCI All Country World Ex USA Investable Market Index.
- With an expense ratio of 0.20% annually, it's the lowest cost international ETF around.
- With $51.4 billion in assets from other share classes, it's large enough to minimize tracking error from sampling and replicates the entire index.
International indexing has been around for quite some time. The first funds were known as EAFE funds, such as the Fidelity International Index Fund (FSIIX), and included only Europe, Australia, and the Far East. Missing were the emerging market countries, Canada, and small cap companies from every country. Next came funds like the Vanguard Total International Index Fund (VGTSX), which included the emerging market countries, excluding Canada, which represents about seven percent of the international stock market.
Then, in March 2007, The Vanguard FTSE All World Ex-Us (VEU) ETF launched a third generation international fund that gave access to Canada. Only small cap stocks were missing from this index. Finally, in September of last year, Vanguard announced it was taking their second generation index fund and transitioning to a new index that would include the missing small cap element. Thus, the old second generation fund becomes the new fourth generation fund.
Why it took so long
It took well over four months for Vanguard to launch the ETF version of this fund. That's because buying more than 4,300 small cap stocks is no easy feat for a $50 billion dollar fund. Buying them all at once would have driven up the price of these shares. Thus, to protect current holders of their mutual fund class share, Vanguard took their time in converting to the new index.
My take on this fund
With most new ETFs merely offering a different spin on active investing, it's great to see one launched going in the opposite direction. The VXUS is definitely an upgrade, and becomes the international equivalent of the Vanguard Total Stock Index (VTI).
Rarely in investing do we have the opportunity to get more in a product, yet pay less for it. With VXUS, investors will get more diversification with lower costs. And because it already has $51.4 billion in assets, we don't have to wait until it becomes large enough to get the benefits of scale.
The Admiral class mutual fund (VTIAX), and the ETF (VXUS) are now my fund of choice for international investing. The only reason to stay in an earlier generation international fund would be that making the change would result in an unacceptable tax consequence.
Let's hear it for the new generation!