Comparing TIAA and Vanguard Funds Based on Different Indices

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famousmortimer
Posts: 1
Joined: Sun May 29, 2016 7:00 pm

Comparing TIAA and Vanguard Funds Based on Different Indices

Post by famousmortimer » Sun May 29, 2016 7:34 pm

Hi all--long time reader, first time poster. I'm starting a new job this summer, and I'm lucky to have an employer that has designed what looks like a truly great retirement plan. The plan is managed by TIAA-CREF, and offers a number of investment choices among TIAA-CREF funds (R3/Institutional class) and Vanguard funds (mostly institutional class, a few admiral class). I'm trying to design my optimal AA, and I'm facing some choices between Vanguard and TIAA-CREF options. I was wondering if any of you could offer some advice between these options.

1. Large-Cap Value. My plan offers a choice between (a) Vanguard Value Index Fund, Institutional Class (VIVIX), 0.08% ER, based on CRSP US Large Cap Value Total Return Index; and (b) TIAA-CREF Large-Cap Value Index Fund, Institutional Class, 0.06% ER, based on Russell 1000 Value Index. Normally my instinct would be to go with option b, because of the slightly lower ER. But I did notice that the Vanguard fund, and the index on which it is based, has produced slightly better returns than the TIAA-CREF option from 2005-2015 (6.49% for Vanguard, 6.10% for TIAA-CREF). Obviously past performance isn't proof of anything, but I thought I would see if anyone had any thoughts on which fund option is better.

2. International Developed Markets. I have a choice between (a) TIAA-CREF International Equity Index Fund, Institutional Class (TCIEX), 0.06% ER, based on the MSCI EAFE Index and (b) Vanguard Developed Markets Index Fund, Admiral Class (VTMGX), 0.09% ER, based on FTSE Developed All Cap ex US Index. My inclination is to go with Vanguard here, despite the additional 3 basis points in expense ratio, because (1) I'd just as soon have exposure to Canada, which I believe the MSCI EAFE excludes; and (2) I'd rather have the all cap exposure, whereas the MSCI EAFE is exclusively large- and mid-cap. Does that make sense? (I could also go with Vanguard Total International Stock Index Fund, Institutional Class (VTSNX), 0.12% ER, based on MSCI AC World Ex USA Index, but that option seems clearly worse than either of the other two options). Do you all agree?

Thanks!

EricBackus
Posts: 16
Joined: Wed Jul 15, 2015 10:30 am

Re: Comparing TIAA and Vanguard Funds Based on Different Indices

Post by EricBackus » Fri Jun 17, 2016 3:28 pm

famousmortimer wrote:2. International Developed Markets. I have a choice between (a) TIAA-CREF International Equity Index Fund, Institutional Class (TCIEX), 0.06% ER, based on the MSCI EAFE Index and (b) Vanguard Developed Markets Index Fund, Admiral Class (VTMGX), 0.09% ER, based on FTSE Developed All Cap ex US Index. My inclination is to go with Vanguard here, despite the additional 3 basis points in expense ratio, because (1) I'd just as soon have exposure to Canada, which I believe the MSCI EAFE excludes; and (2) I'd rather have the all cap exposure, whereas the MSCI EAFE is exclusively large- and mid-cap. Does that make sense? (I could also go with Vanguard Total International Stock Index Fund, Institutional Class (VTSNX), 0.12% ER, based on MSCI AC World Ex USA Index, but that option seems clearly worse than either of the other two options). Do you all agree?
If you really want just developed markets, then Vanguard Total International Stock Index Fund (VTSNX) is clearly not as good a choice, because it has higher expense ratio and it includes some emerging markets which you don't want. However, my personal international investments use Vanguard Total International Stock Index Fund because it seems to me that owning everything, including emerging markets, is a good thing.

Between TCIEX and VTMGX, I like your reasoning that VTMGX includes all cap exposure and therefore seems "better". And 3 basis points is very small, probably not worth worrying much about.

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