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VWO vs VXUS: Which International ETF Is Best?

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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 Graphic

 

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.

VWO

  • 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

VXUS

  • Tracks the FTSE Global All Cap ex-US Index
  • Category: Foreign Large Blend
  • Expense Ratio 0.07%
  • No Minimum Investment
  • Holds 7717 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 when considering compound interest on those returns.

Here is how their performance compares:

VWO vs VXUS Performance

Here is their short term performance:

VWO vs VXUS 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.

More so, because VWO lacks exposure to Korean stocks, it has more exposure to China, India, and Taiwan stocks.

VWO vs VXUS Holdings

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 an almost identical fee 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 Holdings Overlap

Holdings Overlap

 

VWO vs VXUS Fee Comparison

If you are new to investing, you should keep in mind that fees are one of the significant factors that 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 that possesses 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 which in the first place is the underlying factor for the major point in VWO vs VXUS.

In line with 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 somewhat 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 that disqualify 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.

 

VWO Description

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 acts as a benchmark to measure the return results of stock issued by companies in emerging market countries.

VWO Description

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 the other emerging nations.

 

VWO Performance

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:

VWO Performance

 

VWO Holdings

The top 10 holdings for VWO make up 20% of its total assets.

VWO Holdings

Vanguard’s VWO is largely made up of Taiwan Semiconductor Manufacturing, Tencent, Alibaba, Meituan, and Reliance and provides exposure to over 4,000 stocks.

 

VXUS Profile

  • 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) provides investors with exposure to developed and emerging non-U.S. equity markets.

The ETF is comprised of companies located mostly in Emerging Markets, Europe, and Pacific Markets.

VXUS was created in 2011 and currently has an expense ratio of 0.07%, which makes it a low-cost ETF to own.

 

VXUS Performance

Vanguard’s VXUS seeks to replicate the performance of the FTSE Global All Cap ex-US Index.

Performance for international equities have lagged U.S. stocks over the last 10 years:

VXUS Performance

 

VXUS Holdings

Here are the top 10 holdings for VXUS:

VXUS Holdings

VXUS is largely made up of Taiwan Semiconductor Manufacturing, Tencent Holdings, Nestle, Samsung, and ASML Holding.

Over the last 10 years, VXUS has underperformed 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 $50 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 sitting idle until you have enough to purchase a full 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 Retirement Fee Analyzer

Personal Capital’s free tools allow you to easily find which of your investments has high fees so that 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.

I think both ETFs can have a place in a long-term investor’s portfolio depending on your investment goals.

VWO vs VXUS Comparison Chart

If having an asset allocation that only includes Emerging Market stocks at the lowest fees helps you diversify your portfolio, then VWO would be a great option.

Suppose you are looking for a more balanced portfolio with Emerging Markets and Developed Markets.  In that case, VXUS allows you to easily invest in that asset allocation at a very low 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 it’s so important to purchase and sell your shares commission-free.

Again a great way to do this is with M1 Finance or using the Vanguard platform directly for these ETFs.

You can purchase fractional shares for free with M1 Finance, and they give you the ability to buy VWO, VXUS, and thousands of other stocks/ETFs.

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Is VXUS or VWO Better for Financial Independence?

Both VWO and VXUS can help you get to Financial Independence Retire Early (FIRE).  They both have low expense ratios.

I would consider them great funds to add 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.

FIRE Calculator

Calculate Your F.I. Number With My Free FIRE Calculator

 

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, I believe 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.

If you like comparisons like these, you can also look at other popular ones like VXUS vs VTIVGT vs QQQ, and VTI vs QQQ.

 


Disclaimer
This post may have affiliate links, which means I may receive commissions if you choose to purchase through links I provide (at no extra cost to you). Thank you for supporting the work I put into this site!

This information is my opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
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