We compare VWO vs VXUS:
Vanguard FTSE Emerging Markets ETF (VWO) vs Vanguard Total International Stock ETF (VXUS).
There is no shortage of options for investing in Exchange Traded Funds (ETFs).
Choosing between two funds can be difficult, but I will make it easy to decide between VWO and VXUS.
VWO vs VXUS
The primary difference between VWO and VXUS is their asset allocation. VWO holds a collection of stocks from emerging markets, while VXUS holds companies worldwide except for the United States.
Another significant difference is the number of stocks in each, with VWO having 4,377 different companies in the index compared to 7,717 with VXUS.
Lastly, VWO and VXUS have different expense ratios. VWO has an expense ratio of 0.08%, while VXUS has an expense ratio of 0.07%.
Their expense ratio can be considered a minor difference since it's only a difference of 0.01%. As a result, both funds are considered low-cost ETFs.
- Tracks the FTSE Emerging Markets All Cap China A Inclusion Index
- Category: Diversified Emerging Markets
- Expense Ratio 0.08%
- No Minimum Investment
- Holds 4,377 Stocks
- Tracks the FTSE Global All Cap ex-US Index
- Category: Foreign Large Blend
- Expense Ratio 0.07%
- No Minimum Investment
- Holds 7,717 Stocks
VWO vs VXUS Performance
Vanguard's VWO and VXUS have performed differently over the last 10 years, with VXUS beating VWO by more than 2.7% annually. That is a significant difference, especially considering compound interest on those returns.
Here is how their performance compares:
Here is their short-term performance:
As you can see, VXUS has consistently outperformed VWO over the years. However, this doesn't necessarily mean this trend will continue.
Similarities between VXUS and VWO:
- Exchange-Traded Funds (ETFs)
- Low Expense Ratios
- International Asset Allocation
- A Large Number Of Holdings
VWO vs VXUS Holdings
The main difference between VWO and VXUS holdings is their regional allocation. VWO's allocation is all in emerging markets, while VXUS is a blend of international holdings excluding the U.S.
Because VWO lacks exposure to Korean stocks, it has more exposure to China, India, and Taiwan stocks.
VXUS has a 4% exposure to Korea, while VWO has no exposure to Korea. VWO currently has 40% exposure to China, while VXUS has 8%.
Also, Taiwan composes 17.6% of VWO, compared to 5% of VXUS.
This is the primary discrepancy, as VWO and VXUS have almost identical fees of 0.08% and 0.07%, respectively.
Does VXUS Include VWO?
VXUS includes 89% of VWO's holdings, and they have 3,102 overlapping holdings. VWO includes 45% of VXUS's holdings.
This makes VXUS more diversified than VWO.
Here is their percent of overlapping holdings and overlap by weight:
VWO vs VXUS Fee Comparison
If you are new to investing, you should remember that fees significantly affect portfolio growth.
Even the slightest difference can make a huge difference in your portfolio in the long term.
In this case, VXUS has a lower expense ratio of 0.07% compared to 0.08% with VWO.
The difference is not much between these two funds.
What's an Emerging Market?
From an academic standpoint, an emerging market refers to a market or country with some characteristics of a developed economy.
These markets are experiencing considerable economic growth and are evolving from “developing” to “developed” economies.
However, with investments, the term “Emerging Market” does not have a one-size-fits-all definition.
The definition depends on varying perceptions, the underlying factor for the significant point in VWO vs VXUS.
In line with the national GDP, the International Monetary Fund ranks South Korea as the tenth-largest economy in the world. The Korean stock market is also the fourteenth largest stock market globally by market capitalization.
Yet, the MSCI has classified South Korea as an emerging rather than a developed economy.
This is ironic since the S&P 500 index, a top benchmark index for the U.S. stock market, has acknowledged the country as a developed market for over twenty years.
FTSE considered South Korea an emerging market until 2009, when it ‘promoted' the country to a developed market.
However, MSCI points out several factors disqualifying South Korea as a developed market.
These include the lack of offshore currency and the recent short-selling ban to curb the effects of the pandemic, which affected investors.
The Vanguard FTSE Emerging Markets ETF (VWO), launched in 2005, is one of the earliest ETF products of the second largest investment company in the world, Vanguard.
The fund seeks to track the performance of the FTSE Emerging Markets All Cap China A Inclusion Index using the indexing investment strategy.
This index is a benchmark to measure the return results of stock issued by companies in emerging market countries.
VWO became an FTSE index in 2013, automatically excluding South Korea from its holdings, as the index doesn't classify South Korea as an emerging market country.
The fund soon added another characteristic in November 2015, including China A-shares and small-cap stocks, to its holdings.
As a result of these changes, VWO has no exposure to South Korea. Instead, it is more exposed to China, Brazil, India, and other emerging nations.
VWO seeks to replicate the performance of the FTSE Emerging Markets All Cap China A Inclusion Index.
It has resulted in sub-par performance returns over the last 10 years:
The top 10 holdings for VWO make up 20% of its total assets.
Vanguard's VWO comprises Taiwan Semiconductor Manufacturing, Tencent, Alibaba, Meituan, and Reliance and provides exposure to over 4,000 stocks.
- Fund Inception: 2011
- Expense Ratio: 0.07%
- Number Of Stocks: 7717
- Top 10 Holdings: 9%
- Equivalent Admiral Fund (VTIAX)
The Vanguard Total International Stock ETF (VXUS) exposes investors to developed and emerging non-U.S. equity markets.
The ETF comprises companies in Emerging Markets, Europe, and Pacific Markets.
VXUS was created in 2011 and has an expense ratio of 0.07%, making it a low-cost ETF.
Vanguard's VXUS seeks to replicate the performance of the FTSE Global All Cap ex-US Index.
Performance for international equities has lagged U.S. stocks over the last 10 years:
Here are the top 10 holdings for VXUS:
VXUS comprises Taiwan Semiconductor Manufacturing, Tencent Holdings, Nestle, Samsung, and ASML Holding.
Over the last 10 years, VXUS has underperformed compared to the S&P 500, with an average return of 5% per year compared to 16.5% from the S&P 500.
VXUS has $385 billion in total net assets.
It has underperformed over the last 10 years, but again there is no guarantee the next 10 years look the same.
No Minimum Investment
VWO and VXUS are exchange-traded funds (ETFs), so there is no minimum investment. Investors looking to buy fractional shares can use platforms like M1 Finance. (Get $100 When You Use This Link)
Typically, fractional shares are not available for ETFs, but with M1 Finance, you can purchase fractional shares with no commission.
Buying fractional shares allows you to maximize your investment.
You no longer have to keep your money idle until you have enough to purchase a total share.
This is especially beneficial for ETFs with a high share price.
I also use Personal Capital to track my investment fees. They have a free Retirement Fee Analyzer that tells you the future impact of fees on your portfolio.
Personal Capital's free tools allow you to quickly find which of your investments has high fees so you can switch them to low-cost options. (Get a $20 Amazon Gift Card with this link when you add at least one investment account containing a balance of more than $1,000 within 30 days)
Which is Better VWO or VXUS?
VWO and VXUS are different investments. VXUS offers more diverse international exposure compared to VWO. VWO is focused only on Emerging Markets and excludes Korean companies.
This has resulted in lower performance returns for VWO over the last 10 years.
Both ETFs can be in a long-term investor's portfolio, depending on your investment goals.
If having an asset allocation that only includes Emerging Market stocks at the lowest fees helps you diversify your portfolio, VWO would be a great option.
Suppose you seek a more balanced portfolio with Emerging and Developed Markets. In that case, VXUS allows you to easily invest in that asset allocation at a meager cost.
Investors can add VWO or VXUS according to their desired asset allocation.
For example, I own a small percentage of VXUS to provide my portfolio with international exposure.
Lastly, it's important to consider costs and fees because they can add up in the long run. That's why purchasing and selling your shares commission-free is essential.
You can purchase fractional shares for free with M1 Finance, allowing you to buy VWO, VXUS, and thousands of other stocks/ETFs.
Is VXUS or VWO Better for Financial Independence?
VWO and VXUS can help you get to Financial Independence Retire Early (FIRE). They both have low expense ratios.
They are excellent funds for international exposure to a portfolio with core holdings like VOO or VTI.
Of course, you should make the best decision for your risk tolerance and investment goals. (This is not investment advice)
Lastly, being part of the FIRE community, we aim for the lowest fees possible and are big fans of Vanguard.
These two funds fall into those categories.
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My Winner: VXUS
My winner is VXUS for its diversification in Emerging Markets and Developed Markets. VXUS's expense ratio is also very low.
However, as I mentioned, you can invest in both depending on your desired asset allocation.
Lastly, both ETFs are Vanguard funds which likely means they will continue to offer low-cost ETFs and can be purchased commission-free from the vanguard platform or M1 Finance.