Vanguard VXUS and VEA Split on Emerging Markets, Fees
Investors choosing between Vanguard's two primary international equity funds must weigh a two-basis-point fee difference against the inclusion of emerging markets.
Investors allocating non-U.S. equity are weighing a narrow fee gap against emerging market exposure as they choose between Vanguard’s two primary international exchange-traded funds. The decision pits the Vanguard Total International Stock ETF (NASDAQ:VXUS) against the Vanguard FTSE Developed Markets ETF (NYSEMKT:VEA).
Cost favors VEA, which carries an expense ratio of 0.03% compared to 0.05% for VXUS. While both figures represent exceptionally cheap access to thousands of foreign stocks, the cheaper option deliberately excludes emerging economies to achieve that pricing edge.
By tracking the FTSE Global All Cap ex US Index, VXUS captures the broader non-U.S. investable universe, including emerging markets. This results in a massive portfolio of 8,738 holdings since its 2011 launch. VEA, launched in 2007, tracks only developed markets across Europe, Canada, and the Pacific region, holding 3,865 stocks.
The exclusion of emerging markets does not drastically alter the underlying sector allocations. VEA allocates 23% to financial services, 18% to industrials, and 17% to technology. VXUS is similarly weighted, leading with financials at 22%, technology at 21%, and industrials at 16%.
Their top holdings reflect this significant overlap, though VXUS leans on Taiwan Semiconductor Manufacturing at 3.9% due to its emerging markets mandate. Samsung Electronics anchors VEA at 3%, while ranking second in VXUS at 2.2%. SK Hynix appears prominently in both funds, while VEA uniquely features ASML Holding at 1.91% among its largest positions.
Income profiles are effectively identical. VEA trades at roughly $71 and yields 2.6% based on $1.81 in trailing 12-month distributions per share. VXUS, trading near $85, also yields exactly 2.6% after paying $2.19 per share over the same period.
For portfolio managers, the choice ultimately rests on whether the added diversification of emerging markets justifies the two-basis-point premium charged by VXUS.
