What percent Emerging Mkt in Total Int'l Stock Index?

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digarei
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What percent Emerging Mkt in Total Int'l Stock Index?

Post by digarei »

Has anyone else noticed that Morningstar (M*) data is not aligned with Vanguard's?

In an effort to determine the proportion of Emerging Market stocks to my portfolio's International stock holdings,
I used Morningstar's Portfolio Summary to view VTIAX Vanguard Total Int'l Stock Market Index Admiral:

M* reports that VTIAX consists of 13.72% Emerging Market (EM), with the balance to Developed markets.
Vanguard, however, reports 18.9% EM. A similar discrepancy exists for VFWAX FTSE All World ex-US Adm fund.

M* finds only 83% emerging in the explicitly named VEIEX Emerging Markets Stock Index Inv: 83/17 EM/Devl

What am I missing here? Thanks.

Percent Emerging Market in Fund

Code: Select all

                                 Vanguard	Morningstar
VTIAX	Tot Intl Stock Ix Admiral 	18.90%	13.72%
VFWAX	FTSE All World ex-US Adm	  18.80%	14.16%
VEIEX	Emerging Mkts Stk Idx Inv 	99.99%	83.03%		<--- 16.97%  Developed Mkts?
Vanguard Annual Reports 10/2014
Morningstar Portfolio Summary 1/2015 [World Region/Market Classification]

VTIAX http://portfolios.morningstar.com/fund/ ... ture=en-US
VTIAX http://quote.morningstar.com/fund-filin ... d1a667d136
VEIEX http://portfolios.morningstar.com/fund/ ... ture=en-US
VEIEX https://personal.vanguard.com/funds/reports/q720.pdf
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patrick
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by patrick »

Different sources have different ideas of which countries count as emerging markets. For instance, Taiwan is emerging accord to the index Vanguard follows, but it counts as developed in some classifications.
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by in_reality »

For VEIEX I think Morningstar has it as:

developing 83.03%

+ (developed)
Taiwan 14.58
Hong Kong .98
USA .43
Norway. .03
Malta .07
UAE .87

USA and Norway presumably are companies in developing places but listed there.
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by digarei »

patrick wrote:Different sources have different ideas of which countries count as emerging markets. For instance, Taiwan is emerging accord to the index Vanguard follows, but it counts as developed in some classifications.
Could be....

Anyone have premium access to Morningstar? Is Taiwan classified in VTIAX as an Emerging or Developing country?


in_reality: sounds reasonable ... do you recall your source for this? Thanks.
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by in_reality »

digarei wrote:
patrick wrote:Different sources have different ideas of which countries count as emerging markets. For instance, Taiwan is emerging accord to the index Vanguard follows, but it counts as developed in some classifications.
Could be....

Anyone have premium access to Morningstar? Is Taiwan classified in VTIAX as an Emerging or Developing country?


in_reality: sounds reasonable ... do you recall your source for this? Thanks.
Premium access to Morningstar. Taiwan and Hong Kong are definitely developed. So are Norway and Malta. I am just guessing the USA and UAE portions are classified by Morningstar as developed too. It's within rounding error margin though (0.01%) and nothing else adds up so I think that's what it is.

For VTIAX, Singapore, Taiwan, South Korea, Macao and Hong Kong are all developed.
VTIAX has 13.72 as emerging:

The only way I can get to 13.72 is:
7.97 is Asia emerging
1.09 is Europe emerging
2.84 is Latin America
1.83 is Africa/Middle East [this is 2.51 they list as Africa/Middle east minus Israel .52 and UAE .16]
That bring us to within .01% which is within rounding margin.

Hey thanks for your post. I could never figure out which countries were emerging in VTIAX but by looking at VEIEX, I deduced UAE is considered developed and then can figure out UAE and Israel are considered developed in VTIAX.
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by garlandwhizzer »

Vanguard counts South Korea as a developed market. Most EM funds count it as an emerging market and it has a significant market cap weight in their EM index. It all depends on how the fund arbitrarily defines EM and DM at the grey margin zone. In terms of investment returns the different definitions have very little impact on results.

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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by Taggerung »

I'm not typically one to hijack a thread but I also noticed an odd thing when I looked at the "Vanguard Portfolio Watch" tool-thingy. It indicates that emerging markets make up no less than 22% of international stocks. I thought it odd when it showed my portfolio to hold only 17.3% EM and I was 4.7% under represented in this area. This is posted at the bottom of the page: "Source: MSCI AC World Index Free ex USA as of 12/31/2014."

Isn't 22% a bit high?
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by livesoft »

^Portfolio Watch will not break down many non-Vanguard funds correctly into US/foreign developed/foreign emerging, so you have to understand its limitations when you interpret the results.

So do you have non-Vanguard funds or ETFs in your mix?
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by nisiprius »

This brings up an important point. People calculate characteristics of "asset classes" to four significant places, yet the basic definition of what should or shouldn't be included in any "asset class" itself is always arbitrary and imprecise.

What's an "emerging market?" It's something that someone has decided to call an emerging market. We can probably all agree that Germany is "developed" and that Bulgaria is not, but take a look at Wikipedia's article on Emerging markets and the comparative table.

Is Qatar an emerging market? MSCI and Dow Jones think so, FTSE and Russell don't.
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by Taggerung »

I have one small cap blend index from Fidelity (TSIBX) - that's the only non-Vanguard fund. The international I have (total international [VXUS, VTSNX] international value [VTRIX], international small-cap [VSS]) is all Vanguard. Such an issue would seem to explain why it doesn't break down my EM allocation accurately, but why would they be comparing my portfolio to a benchmark of 22% EM. 22% would seem over-weighted by most estimates, no? In other conversations folks are talking about 13 vs 17% being the market weight.
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by Dave55 »

VXUS Vanguard Total International ETF
VXUS on Morningstar premium: 86.28% Developed Markets and 13.72% Emerging Markets.

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Taggerung
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by Taggerung »

It's a great point that the definition is fuzzy and maybe even a bit fluid, but I just found it odd that Vanguard is evaluating portfolios with that 22%. Everyone has their own definition, but they all seem to land around 15% +/- 2%. Some will say 17%, others 13%, a rough guide of 85/15 split on international seems widely cited, so 22% stood out to me.
That is all.
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by livesoft »

22% is the Vanguard definition. So if you have 17% with Vanguard funds, then you are probably underweighted in emerging markets.
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by Taggerung »

Dave55 wrote:VXUS Vanguard Total International ETF
VXUS on Morningstar premium: 86.28% Developed Markets and 13.72% Emerging Markets.

Dave

So given this, livesoft, you don't think 22% is odd? Is there something wrong with me? Does anyone else's Vanguard Portfolio Tool cite 22%?
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by livesoft »

No, that is not odd. Dave55 went to the Morningstar playground for those numbers. M* uses a different definition of EM than Vanguard does. The fact the different places use different definitions is what this thread is discussing.

You may wish to use M* instant X-ray with your portfolio to compare to Vanguard Portfolio Watch.

My Vanguard Portfolio Watch tool cites 22%, too. See this old screen capture when it was 21%: http://www.bogleheads.org/forum/viewtop ... 2#p2248842
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by Dave55 »

On ETF.com
see: http://www.etf.com/VXUS

VXUS is 85.88% developed and 14.12% Emerging

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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by garlandwhizzer »

The percentage of EM in an international fund depends on where one draws the line between DM and EM in that fund. It is not a black and white question but rather a continuum going from black (clearly a EM--China, India, Thailand, Mexico, Brazil, etc.,) to shades of gray (the transition zone--S. Korea, Taiwan, Hong Kong, Singapore, Quatar, Israel, etc.) to white (clearly a DM (USA, etc.,). A cap weighted index pays no attention to EM vs. DM in its composition and simply arranges components by market weight in which case EM percentage varies according to whether their market weight is going up or down relative to DM components.

Most actively managed international funds strongly overweight DM relative to EM, more so than cap weights would account for. This is one reason why the Vanguard Total International Fund has underperformed many other international funds in recent years when EM has suffered relative to DM. DM markets are more transparent, less volatile, have lower trading costs, stronger rule of law, less corruption, and better investor and property protections from government than do EM. You can easily see why many prefer them. Interestingly, looking at past history over the long term, Credit Suisse has concluded that corruption is a source of positive return. Yes, believe it or not, greater corruption in a country tends to lead to better long term equity returns. Less corruption in DM leads to lower long term returns but less volatility and risk. This suggests that the quite obvious drawbacks in EM are more than fully priced into the market and that the market offers a risk premium in EM over DM for those investors who are willing to put up with their antics over the long haul (which can require quite a strong stomach).

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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by digarei »

OP here. My reason for asking about this evident discrepancy (which I realize now is not confined to only this asset class) was the creation of a spreadsheet model that extended my IPS-dictated allocation targets into a table providing an at-a-glance portfolio analysis, one line of which is

Code: Select all

                                      Portfolio Alloc  Target Alloc

Emerging Market   % of  foreign stocks 	 17.71%			20%
  
The definitional differences (What is EM? Which countries should be included?) noted in above responses have made me question my target allocations. Ultimately, I revised my EM alloc and accepted Morningstar's definition—this was almost an arbitrary decision. If you care whether your portfolio meets your objectives (I do) and have decided that an asset or sub-asset class is to be rebalanced when necessary to conform to a specific allocation, then you need know when it falls out of balance.

The work required to break out EM (and REITs) from various funds is a PITA. I wrote cell formulas that sum the amount of EM in each holding (based on M* %s), divide this number by the sum of foreign stocks--another constructed amount from bits of different funds, and show the result - see 'Portfolio Alloc', above. If the resulting percentage is outside the boundaries of my EM rebalancing band, this fact is prominently displayed on the same line in an otherwise empty cell—a real eyecatcher!

I like the result better than that produced by Vanguard's Portfolio Watch tool—which is a good thing because I can no longer compare the two outputs reliably. livesoft finds the tool useful while noting its limitations with non-Vanguard funds.
nisiprius wrote:[...] the basic definition of what should or shouldn't be included in any "asset class" itself is always arbitrary and imprecise.
My need is simple: to know when I need to adjust assets. The arbitrariness of asset class definitions is unfortunate in a field where quantitative assessments are routine, and by most accounts necessary, in meeting investing goals.
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by Taggerung »

Vanguard says VXUS (Vanguard International ETF) is 18.8% EM...
So again, I say...odd.

https://personal.vanguard.com/us/funds/ ... =INT#tab=2
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by Taggerung »

I find it interesting, in the same way that I find most things on this forum interesting, that Morningstar and Vanguard define Emerging Markets differently. I have no problem with that and don't really care. That's not my point. My point is simply that I find it odd one could purchase a "Total International" fund from Vanguard and then when having his portfolio evaluated by Vanguard be told that his emerging markets exposure is under represented by several percentage points. It just seems like a reasonable assumption that the two would match.
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by 555 »

Taggerung wrote:I find it interesting, in the same way that I find most things on this forum interesting, that Morningstar and Vanguard define Emerging Markets differently. I have no problem with that and don't really care. That's not my point. My point is simply that I find it odd one could purchase a "Total International" fund from Vanguard and then when having his portfolio evaluated by Vanguard be told that his emerging markets exposure is under represented by several percentage points. It just seems like a reasonable assumption that the two would match.
You are absolutely right. I'm not sure why others aren't getting this. For
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
https://personal.vanguard.com/us/funds/ ... IntExt=INT
they say
Region allocation (as of 01/31/2015)
18.80% Emerging Markets

whereas in Vanguard Portfolio Watch® they say
Stock Markets Outside the U.S.: Emerging markets 22.0%

Different percentages. Same Vanguard.
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by livesoft »

I would say that there are a couple of things going on. First, Vanguard is not very prompt with updating its various databases and facts. Even if a number got put on the web site in January, the data used to calculate the number could come from 6 months earlier or more. This is pretty well known. Second, the stock markets do not move in lock step. Sometimes EM does better than developed markets; sometimes worse. So this changes the relative percentages. I have watched the percentage of EM change in Portfolio Watch over the years, so I know it does go up and down.

These different numbers should also tell one that the precision of all this is pretty low. I know some folks want everthing to the third decimal point, but in reality the input data might not be precise to the nearest 1% or 5%.

Why not give Vanguard a call and ask them? I think it would be interesting if anybody there had a good reason for the discrepancy or if the reasons matched my explanation.
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Re: What percent Emerging Mkt in Total Int'l Stock Index?

Post by rkhusky »

nisiprius wrote:This brings up an important point. People calculate characteristics of "asset classes" to four significant places, yet the basic definition of what should or shouldn't be included in any "asset class" itself is always arbitrary and imprecise.

What's an "emerging market?" It's something that someone has decided to call an emerging market. We can probably all agree that Germany is "developed" and that Bulgaria is not, but take a look at Wikipedia's article on Emerging markets and the comparative table.

Is Qatar an emerging market? MSCI and Dow Jones think so, FTSE and Russell don't.
Note that Qatar is also not a developed country. There is another class of int'l called Frontier Markets, into which most put Qatar.

Some countries hover around the Developed/Emerging boundary. Others hover around the Emerging/Frontier boundary. There are others that don't make any of the lists.
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