If you are unsure where to pitch your tent between VXUS and VEU – two popular Vanguard funds, this article is for you. Like many other investors looking for answers, this VEU and VXUS comparison will let you know your options and put you in a good position to decide which is best for you.
Key Takeaways
Are you in a hurry? Here are the critical points of the article.
- Vanguard issues both VXUS and VEU, and both index funds target the total international stock market outside the U.S.
- VEU currently holds about 3,500 stocks, while VXUS has more than double that number at over 7,700 stocks.
- Both tracks different underlying indexes – VEU tracks the FTSE All-World ex U.S. Net TR US RIC, while VXUS currently tracks the FTSE Global All Cap ex U.S. Net US RIC.
- Both VEU and VXUS have the same expense ratio, are low-cost ($8 on $10,000), similarly priced, and with similar historical performances over time.
- Adding either of the two funds to your portfolio is a sound investment decision that will pay off in the long run.
VEU vs. VXUS – Overview
We are all investors with almost the same end goal – to make profits. But even at that, our interests clearly are not the same and this is what drives our product or trading strategy. For instance, some investors prefer index funds to mutual funds for the apparent reason of diversification. Within the index funds investors, we have investors who only want to put their money into the stock market of specific regions, e.g., European stocks, Asia Pacific stocks. Others want more extensive coverage, such as the international stock market.
Going further down, we can also identify investors who prefer to invest in global stocks but without United States companies. This is the group of people who would most likely have a hard time choosing between the Vanguard FTSE All-World ex-US ETF (VEU) and Vanguard Total International Stock ETF (VXUS).
These two low-cost exchange-traded funds (ETFs) are from the same issuer – Vanguard – and focus on the same market aspect, which are international stocks other than the United States stocks. Naturally, you are still putting your money on companies outside the U.S., whichever you end up with. But as you would expect, both ETFs are not precisely the same, which is why we are having this conversation.
For example, they do not hold the same number of stocks, and their portfolio compositions are also different. One essentially contains the other in it. They both track different underlying indexes, and most importantly, their performance over time has been very different.
I have expatiated on the differences and similarities of both VEU and VXUS in the subsequent sections of this article, in terms of composition, historical performance, fees, tax efficiency, risks and volatility, and other important factors.
VEU vs. VXUS – Differences in Composition
Composition Differences
Vanguard FTSE All-World ex-US ETF (VEU) debuted on 2 March 2007, while Vanguard Total International Stock ETF (VXUS) only came into the picture about four years later, on 26 January 2011. Interestingly, the older of the two has a smaller composition. VEU currently holds about 3,500 stocks, while VXUS has more than double that number at over 7,700 stocks.
As mentioned earlier, VEU is restricted to only large-cap companies, while VXUS combines both small and medium-cap companies. All the 2,857 large-cap stocks in VEU are also present in VXUS, alongside another 3,557 small-cap stocks. Therefore, we can say VXUS is a subset of VEU.
Both funds favor more large-cap international stocks than mid-cap stocks and small-cap stocks, with VEU and VXUS having over 70% large caps in their portfolio. However, the major difference is in the amount of small-cap stocks each fund holds. VXUS holds more stocks of small-cap companies (7.16%) than VEU (2.15%).
As you would expect, VXUS, with more holdings, is the larger fund, with a fund size of $381 billion. However, that is in contrast to VEU’s $49.4 billion. With $53.77 billion assets under management, VXUS manages more assets than VEU, which has just $35.98 billion. That said, both are clearly large funds despite the difference in sizes.
Top Holdings and Sectors
The top 10 holdings of both VEU and VXUS are quite close, and these ten companies account for 9.90% of the fund’s total portfolio in each case. From these, we can conclude that both funds are a lot less top-heavy, especially compared to the U.S. broad market indexes. It is also important to mention that VXUS holdings comprise only a small percentage of small-cap international stocks, which are entirely absent in VEU’s holdings.
Furthermore, the top sectors of both funds are the same, with differences only in the exact percentage they account for in either case. Finance, Electronic Technology, Health Technology, Consumer Non-Durables, and Technology Services are the five biggest sectors in both VEU and VXUS.
Underlying Indexes
Both tracks different underlying indexes – VEU tracks the FTSE All-World ex U.S. Net TR US RIC, while VXUS currently tracks the FTSE Global All Cap ex U.S. Net US RIC. It is easy to believe that both indexes are similar, but this is not true. VXUS’s index focuses on the returns on investments of stocks issued by the companies with headquarters outside the United States. On the other hand, VEU’s underlying index aims to perform just like the international stock markets.
Region and Countries
Both VEU and VXUS have broad exposure and favor similar regions in their portfolio allocation. In both cases, Europe and the Pacific account for the most prominent regions of each fund. For VEU, the regional distribution is such that Europe has the most dominance at 39%, followed by Pacific (28.90%) and the Emerging Markets (25.80%). Similarly, Europe (38.60%), the Pacific (28.70), and the Emerging Markets (25.60%) are the dominating regions in VXUS.
VEU vs. VXUS – Historical Performance
Identical is the best way to describe the historical performance of these two international stock ETFs. You’d expect the almost non-existence of small-cap stock companies in VEU’s portfolios to impact its performance. But in reality, that is not the case.
VEU’s total return over the last decade is 7.42, while VXUS comes very close at 7.44%. The numbers are similar in the previous five years, at 9.67% and 9.65% for VEU and VXUS, respectively. The YTD of both VEU and VXUS is currently 0.86% and 0.77%, respectively. VEU’s Annual Dividend Yield is 2.36%, just slightly below VXUS’s 2.46%.
You will agree that it is only on a closer look you will identify VXUS as the slightly better performance historically. And that is due to the higher number of small-cap stocks (known for their long-term higher returns) in its portfolio. However, you should note that the higher returns from these small-cap stocks come with more volatility.
VEU vs. VXUS – Fees and Tax Efficiency
Expense Ratio
The fee is another crucial factor investors look out for when comparing similar index funds. Let’s start with the fees, which is the amount you pay on every unit of the ETF you buy. Both VXUS and VEU are cheap, with an expense ratio of 0.08%, i.e., you pay just $8 as fees for every $10,000 you invest. It is one of the cheapest you can find in such broad index funds.
Minimum Investments
You can buy as low as just one share when it comes to the minimum investment. So, you need just $63.52 to get VXUS and $61.3 to get VEU. The average spread of both index funds is 0.02%, which equals $0.01.
VEU vs. VXUS – ESG Ratings and Impacts
Investors can also access the strength of any index fund using its ESG ratings and impacts. For the records, the ESG score indicates how the constituent holdings of an ETF manage environmental, social, governance, and mortality issues. In the long run, it shows how resilient they can be to these issues without affecting the performance.
The ESG score of VEU is 7.96/10, which is not so far apart from the 7.72/10 score of VXUS (MSCI ESG Research LLC’s scores). Also, 42% of VEU’s holdings are rated AAA or A.A., while 39% of VXUS’s holdings have similar AAA or A.A. ratings. The Sustainable Impact Solutions score of both VEU and VXUS is 6.84% and 6.74%, respectively.
VEU vs. VXUS – Risks and Volatility
This VXUS vs. VEU comparison will be incomplete without touching on the risk metrics and volatility. However, considering both are index funds, the risks are very minimal. After all, isn’t that what ETFs are all about?
It is difficult to separate these two funds according to volatility. The volatility levels are almost similar in both VEU and VXUS – 4% monthly and 14% per annum. But there is a slight difference in their respective drawdowns. VEU’s maximum drawdown is -24.27%, while that of VXUS is slightly higher at -25.54%.
Investing in International Stocks – VEU or VXUS?
Exchange-Traded Funds (ETFs) generally follow the same pattern of investment. First, identify the exact index funds you want to buy, decide on how much you have to put into it, and then buy. The only slight difference is in how you buy. As always, you can either buy directly from the issuers, which is Vanguard in this case, or work with a reputable broker who has access to your funds of interest. The latter option might cost you some management expenses, but it gives you the liberty to let someone else do all the hard work for you. You can also consult a registered investment adviser if you need expert advice or recommendations.
Final Verdict
Vanguard is one of the biggest names in the business, and VEU and VXUS are two of the most popular index funds from their stables. Both funds focus on the total international stock market, excluding the United States, and are easily classified as large blend funds of global coverage.
Which should you buy?
Let me quickly state here that this is not investing advice, considering I am not one of the registered investment advisers out there. More than anything else, we have established that there are no clear-cut distinctions between the Vanguard FTSE All-World ex-US ETF (VEU) and the Vanguard Total International Stock ETF (VXUS). So, you are not making a wrong decision whichever of the two you decide to go for. They are both excellent index funds to have on your portfolio.
However, if you are an investor with clear preferences and expectations, you may want to choose the one that best resonates with these points. You get more diversification with VXUS, although it is hardly that pronounced. VXUS is also a fund with greater liquidity if that is what you look out for. It will be the ideal candidate for investors who want to play the long-term game. That said, factors like dividend yields, holdings, and geographical exposure do almost nothing to separate them.
Overall, both are excellent channels to expose your portfolio to internationally-focused ex-US company stocks. In addition, you can check out more interesting comparisons and analyses of different fund pairs here.
Good luck.