VXUS vs VT: Comparing Two Popular Vanguard ETFsLAST UPDATED: May 26, 2023 | By Conrad Golly
ETFs have become a popular investment choice for many investors, and two of the most popular ETFs in the market are VT and VXUS. While both funds offer investors exposure to a diversified portfolio of stocks, they differ in their asset allocation and geographical focus. VXUS vs VT:
VT invests in both U.S. and international stocks, with approximately 60% of its holdings in U.S. stocks and the remaining 40% in international stocks. VXUS, on the other hand, invests solely in non-U.S. stocks. This difference in asset allocation can significantly impact an investor’s portfolio, depending on their investment goals and risk tolerance.
In this article, we’ll compare the performance, fees, dividend yield, holdings, and technical indicators of these two popular ETFs to help investors make an informed investment decision. We’ll also discuss the pros and cons of investing in either ETF and the factors investors should consider before making their investment decision.
VXUS vs VT: What’s the Difference?
When it comes to investing in international stocks, two popular exchange-traded funds (ETFs) are VXUS and VT. Both funds are offered by Vanguard, a well-known investment management company. While both VXUS and VT invest in international stocks, there are some key differences between the two that investors should be aware of.
One of the most significant differences between VXUS and VT is their asset allocation. VXUS is a total international stock ETF, which means it invests in stocks from all over the world, excluding the United States.
On the other hand, VT is a total world stock ETF, which invests in both U.S. and international stocks. Specifically, VT invests in 60% U.S. stocks and 40% international stocks.
Another difference between VXUS and VT is the number of stocks in each fund. VT has a larger portfolio, with 9,299 different companies in the index, compared to 7,765 with VXUS. This means that VT offers more diversification than VXUS.
Performance and Returns
When it comes to performance and returns, VXUS and VT have had similar results in recent years. However, there are some slight differences. VXUS’s mean return is 0.34 points lower than that of VT, and its R-squared is 0.96 points lower. With a standard deviation of 15.12, VXUS is slightly more volatile than VT. The alpha and beta of VXUS are 0.11 points higher and 0.02 points lower than VT’s alpha and beta.
Another factor to consider when comparing VXUS and VT is their expense ratio. VXUS has an expense ratio of 0.08%, while VT’s expense ratio is slightly higher at 0.09%. While this may not seem like a significant difference, it can add up over time, particularly for long-term investors.
VXUS vs VT: Performance Comparison
When comparing Vanguard Total International Stock ETF (VXUS) and Vanguard Total World Stock ETF (VT), one of the most critical factors to consider is their performance. Both funds provide investors with exposure to global equity markets, but they differ in their asset allocation and geographic focus. VXUS invests solely in international stocks, while VT has a 60/40 split between US and international stocks.
Over the past five years, VXUS has had a slightly higher annualized return than VT, with VXUS returning 10.61% and VT returning 10.02%. However, over the past ten years, VT has outperformed VXUS, returning 9.84% compared to VXUS’s 9.18%. It’s important to note that past performance is not indicative of future results.
When it comes to fees, VXUS has a slightly higher expense ratio of 0.08% compared to VT’s expense ratio of 0.09%. This means that investors in VXUS will pay $8 in fees for every $10,000 invested, while investors in VT will pay $9 in fees for every $10,000 invested.
Both VXUS and VT pay dividends, with VXUS having a slightly higher dividend yield of 2.87% compared to VT’s dividend yield of 2.05%. It’s important to note that dividend payments are not guaranteed and can fluctuate based on market conditions.
Risk-Adjusted Performance Metrics
When it comes to risk-adjusted performance metrics, VXUS has a slightly higher Sharpe ratio of 0.56 compared to VT’s Sharpe ratio of 0.51. The Sharpe ratio measures the excess return per unit of risk, with a higher Sharpe ratio indicating better risk-adjusted performance.
During the COVID-19 pandemic, both VXUS and VT experienced significant drawdowns. VXUS had a drawdown of -34.07%, while VT had a drawdown of -33.95%. It’s important to note that drawdowns are a normal part of investing, and investors should consider their risk tolerance when choosing between these funds.
VXUS has a lower volatility of 13.46% compared to VT’s volatility of 14.03%. This indicates that VXUS experiences smaller price fluctuations and is considered to be less risky than VT based on this measure.
VXUS vs VT: Holdings and Diversification
When it comes to holdings and diversification, VXUS and VT have some key differences. VXUS is 100% international stocks, while VT is 60% U.S. and 40% international. This means that VXUS offers exposure to a wider range of international markets, including emerging markets, Europe, and Asia. VT, on the other hand, is heavily weighted towards U.S. stocks, with holdings in major companies like Apple, Microsoft, Amazon, and Tesla.
VXUS has a diverse range of holdings, including companies like Taiwan Semiconductor Manufacturing, Tencent Holdings, Nestle, Samsung, and ASML Holding. This diversity helps to reduce the risk of exposure to any one particular market or sector. In contrast, VT’s holdings are more concentrated in the technology, healthcare, and industrials sectors.
Both VXUS and VT track broad-based indexes, with VXUS tracking the FTSE Global All Cap ex-US Index, and VT tracking the FTSE Global All Cap Index. This means that both funds offer exposure to a wide range of companies and sectors worldwide.
VXUS vs VT: Fees and Commission
When it comes to investing in exchange-traded funds (ETFs), fees and commissions are a crucial factor to consider. In this section, we will compare the fees and commission structures of VXUS and VT.
First, let’s take a look at the expense ratio. VXUS has an expense ratio of 0.08%, while VT has a slightly lower expense ratio of 0.09%. This means that for every $1,000 invested, VXUS charges $0.80 in fees, while VT charges $0.90. Although the difference may seem small, it can add up over time, especially for long-term investors.
Another important consideration is the commission structure. Both VXUS and VT are commission-free when traded on their respective platforms, which makes them an excellent choice for investors who want to avoid trading fees. However, it is worth noting that some brokers may charge a commission when trading ETFs, so it is essential to check with your broker before making any trades.
Fractional shares are another important consideration when comparing VXUS and VT. Fractional shares allow investors to purchase a portion of a share, which is particularly useful for those who want to invest a specific dollar amount. Both VXUS and VT offer fractional shares, which means that investors can purchase as little as one dollar’s worth of shares.
Investment fees are another factor to consider when comparing VXUS and VT. VXUS has a lower investment fee of 0.11%, while VT has a slightly higher investment fee of 0.13%. This fee is charged by the fund manager and covers the cost of managing the fund.
For investors with a taxable account, the foreign tax credit is an important consideration. VXUS provides a foreign tax credit, which can help reduce the amount of taxes owed on foreign income. VT does not provide a foreign tax credit, which means that investors may owe more in taxes on foreign income.
Finally, capital gains are an important consideration when comparing VXUS and VT. Both funds have a similar capital gains structure, which means that investors may owe taxes on any gains realized when they sell their shares.
The Bottom Line: VXUS vs VT
ETFs have become a popular investment choice for many investors, and VT and VXUS are two of the most popular ETFs in the market. While both funds offer investors exposure to a diversified portfolio of stocks, they differ in their asset allocation and geographical focus. Investors should consider their investment goals and risk tolerance before deciding which ETF to invest in.
By comparing the performance, fees, dividend yield, holdings, and technical indicators of these two popular ETFs, investors can make an informed investment decision. Ultimately, the choice between VT and VXUS depends on the investor’s individual circumstances and preferences.
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