VXUS Vs. IXUS: A Case Where The Chosen Index Is Not Critical

VXUS Vs. IXUS: A Case Where The Chosen Index Is Not Critical

Written by Summary

The Vanguard Total International Stock ETF invests based on the FTSE Global All Cap ex US Index.

The iShares Core MSCI Total International Stock ETF invests based on the MSCI ACWI ex USA IMI Index.

While both ETFs have provided similar return and risk profiles, the decision could come down to which managing firm the investors prefer.

For those investors looking to add international equity exposure with one ETF, I would rate both as a Buy, though VXUS has some advantages.

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yorkfoto/E+ via Getty Images Introduction

When comparing ETFs that, by name, invest in the same segment of the equity market, I have found which index they chose to drive their investments can make a big difference in either performance or risk, sometimes both. Sometimes, I converted that research into an article for Seeking Alpha, such as these:

In both cases, the ETFs generated different results, which then affected what investors earned. In this case, while the Vanguard Total International Stock ETF (NASDAQ: VXUS ) and the iShares Core MSCI Total International Stock ETF (NASDAQ: IXUS ), are close enough in their statistics, that the deciding factor could by the manager (Vanguard or Blackrock) or index provider (FTSE or MSCI). For those investors looking to add international equity exposure with one ETF, I would rate both as a Buy. A quick look at the International market

Investing outside one’s home country adds extra risks that need to be considered in setting your timing and/or allocation percentage. These are a few of those to keep in mind. Currency risk

Data by YCharts Unless the ETF is hedging against the movement of your currency, the ETF’s performance will be negatively affected when your currency is strong and positively affected when it weakens. The above chart shows movement against three major currencies. International ETFs could have exposure to dozens, not all of which are moving in sync with the USD. My IHDG Vs. IQDG: To Hedge Or Not Your International Dividend ETF article explored this in more detail. Different GDP Growth Forecasts

Of course these forecasts were made before Russia threw the world’s economy into unknown territory. The final level of Russian energy sanctions will effect inflation and growth rates, which are already being downgraded. Russia and Ukraine are also major exporters of grains. openknowledge.worldbank.org (Jan’22) While it might not be the case now but before the Ukrainian invasion, Europe was expected to grow faster than the United States in 2022 but not in 2023. All the Emerging Market regions were above both in both forecasted years, so exposure there is important: VXUS has 26% and IXUS has 23.5%. To be consistent, I excluded South Korea, as FTSE considers it Developed. Classifying them as EM would increase that exposure by under 4% for both ETFs. Market risks

By this, some risks to consider are associated with a country. A prime example is, again, what happened to Russian stocks once those sanctions were applied. While Putin has only threatened so far, nationalization of foreign corporate assets has occurred in the past by other countries. Another risk, listed in Frontier Market ETF prospectus documents is the possibility of currency flow and foreign ownership limits. Examining the Vanguard Total International Stock ETF

Seeking Alpha describes this ETF as: The Vanguard Total International Stock ETF is an exchange traded fund launched and managed by The Vanguard Group, Inc. The fund invests in public equity markets of global ex-US region. It invests in stocks of companies operating across diversified sectors. The fund invests in growth and value stocks of companies across diversified market capitalization. The fund seeks to track the performance of the FTSE Global All Cap ex US Index. VXUS started in 1996. VXUS has $48.6b in assets, with Vanguard charging only 8bps in fees. Investors currently receive a 3.5% yield. Index-based fund evaluation should start with that index. FTSE Index overview used by VXUS

FTSE describes their Index as: The FTSE Global All Cap ex US Index is part of a range of indices designed to help US investors benchmark their international investments. The index comprises large, mid and small cap stocks globally excluding the US. The index is derived from the FTSE Global Equity Index Series (GEIS), which covers 98% of the world’s investable market capitalization. The Index contains stocks from almost 50 countries. While now removed, Russia’s 50 stocks were .4% […]

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