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Investors Love This Vanguard ETF

Investors Love This Vanguard ETF

Two obvious themes from the world of exchange traded funds this year are Vanguard's jaw-dropping growth and investors' preference for ex-U.S. developed markets funds. Those themes meet in the Vanguard FTSE Developed Markets ETF (NYSE: VEA).

Year-to-date, investors have added $16.2 billion in new money to VEA, good for the highest total among all Vanguard ETFs and the third-best total among U.S.-listed ETFs. VEA is delivering for investors. The fund is up 24 percent year-to-date, well ahead of the 20 percent returned by the S&P 500. That's enough to earn VEA the honor of being CFRA Research's focus ETF for the month of December. 

VEA tracks the FTSE Developed All Cap ex US Index and holds 3,850 stocks. With that massive lineup, the ETF provides exposure to ex-U.S. large-, mid- and small-cap companies. Speaking of massive, VEA had $65.7 billion in assets under management at the end of October, making it one of the largest U.S.-listed ETFs of any stripe. 

Rebounding In Style

It has been a while since VEA and rival developed markets ETFs have outperformed U.S. stocks, indicating this move could be in its early stages.

This relative strength comes in the heels of four consecutive years of underperformance,” Todd Rosenbluth, director of ETF and mutual fund research at CFRA, said in a Monday note. “Meanwhile, five of the 10 strongest ETF inflows in this record-setting year are international equity ETFs.”

CFRA is bullish on some of VEA's marquee holdings, including Nestle AG (OTC: NSRGY) and Samsung Electronics.

Nestle, the largest such holding, is a CFRA Buy recommendation,” said Rosenbluth. “Amid rising investor activism and transformation spearheaded by its new management, CFRA thinks there will be acceleration of M&A activities to optimize capital return and unlock the potential value held within Nestlé’s portfolio. This could reignite its stagnated top-line growth and tilt the company toward the nutrition, health and wellness area.”

The Lineup

VEA differs from rival ETFs that track the MSCI EAFE Index in that the Vanguard fund holds shares of Canadian companies. Additionally, VEA's index provider classifies South Korea as a developed market, putting Asia's fourth-largest economy in this fund. MSCI classifies South Korea as an emerging market.

Europe and developed Asia-Pacific markets combine for almost 92 percent of VEA's weight.

From a fund-specific perspective, CFRA views VEA’s costs favorably,” said Rosenbluth. “The ETF has a modest 0.07 percent expense ratio and has a penny bid/ask spread aided by an average daily volume of 8 million shares. In addition, the ETF is trading well above its 200-day moving average, contributing to its bullish technical trend rating input.

CFRA has an Overweight rating on VEA.

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Todd Shriber owns shares of VEA.


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