Market Overview

International Exposure For Thrifty Investors

International Exposure For Thrifty Investors

Low fees on exchange-traded funds are not a concept reserved exclusively for domestically-focused funds. With so many issuers consistently lowering expenses in bids to attract more assets, low fees are easy to find on international equity funds.

Of course, that theme is bound to include some Vanguard funds, such as the Vanguard FTSE Developed Markets ETF (NYSE: VEA). At the end of third quarter, VEA had $62.9 billion in assets under management, making it the second-largest ex-U.S. equity ETF and the sixth-largest ETF overall.

VEA keeps with the Vanguard tradition of presenting investors with affordable access to an array of asset classes. This Vanguard ETF charges just 0.07 percent per year, or $7 on a $10,000 investment, making it not only one of the least expensive international ETFs trading in the U.S., but cheaper than 93 percent of competing strategies, according to issuer data

A Deep Bench

Another familiar theme with Vanguard's broad market ETFs is that these funds really are broad. In the case of VEA, the ETF holds 3,870 stocks and its top 10 holdings combine for less than 10 percent of the fund's weight.

“A well-diversified portfolio and sizable cost advantage should give this fund an edge over the long term,” said Morningstar in a note out Wednesday. “This advantage helped the fund outperform the category average by 31 basis points annualized from its inception in July 2007 through September 2017. The fund's performance was particularly strong from May 2012 through May 2014, outpacing the category average by 2.40%, partially because of more-favorable stock exposure in the financial-services sector.” 

VEA differs from funds that track the MSCI EAFE Index because the Vanguard fund's underlying index allows for the inclusion of Canadian stocks, which the MSCI EAFE benchmark does not do. VEA devotes over 8 percent of its weight to Canada.

Impressive Performance

VEA is up 20.2 percent year to date, a performance that investors are certainly acknowledging. The ETF saw inflows of $10 billion in the first half of this year, a trend that is continuing. For the week ended Oct. 24, investors added nearly $308 million to VEA. Year to date, VEA has added $15.6 billion in new assets, a total exceeded by just two other ETFs.

“While economic risk should already be reflected in market prices, investors should be aware of their currency exposure if these economic events lead to changes in monetary policy,” said Morningstar. “Central banks in the U.K., eurozone, and Japan are all using aggressive monetary policies to keep interest rates low in an effort to simulate demand. If rates in those markets stay low, while rates rise in the United States, the U.S. dollar could strengthen, which would hurt the fund's performance because it does not hedge its currency exposure.”

Related Links:

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Todd Shriber owns shares of VEA.

Posted-In: morningstarLong Ideas Specialty ETFs Top Stories Markets Trading Ideas ETFs Best of Benzinga


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