Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

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CoastalWinds
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Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by CoastalWinds »

The VG Total Intl Stock fund (VTIAX) has a pretty sizable chunk of non-qualified dividends (~25%) that get taxed at one’s marginal tax rate (when held in a taxable investment account). Compare this with the ~100% Qualified Dividend of the VG Total US Stock fund (VTSAX).

While I understand it provides some relief in the form of a foreign tax credit, this non-qualified portion takes up precious space in the ordinary income brackets, thus limiting the amount of space available to do Roth conversions, etc. This becomes especially relevant as one’s taxable portfolio gets large and holds a significant amount of VTIAX.

Is there a more tax-efficient broad-based international Index fund or ETF, either in VG or Fidelity’s lineup? Preferably one that has ~100% qualified dividends (with a similar or lower dividend yield and avoids capital gains until I sell).

Thank you.
livesoft
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by livesoft »

I am unaware of any international fund with a higher qualified dividend percentage than VEA / VTMGX, but I did not look very hard at the time.
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HomeStretch
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by HomeStretch »

Alternatively if there isn’t an international fund with a higher QDI %, you could hold your international allocation in your tax deferred account(s) and hold only VTSAX in your Taxable account.
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CoastalWinds
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by CoastalWinds »

HomeStretch wrote: Mon Sep 16, 2019 8:11 pm Alternatively if there isn’t an international fund with a higher QDI %, you could hold your international allocation in your tax deferred account(s) and hold only VTSAX in your Taxable account.
Except those are already stuffed with fixed income/bonds per BH recommendations on tax-efficient fund placement.
HomeStretch
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by HomeStretch »

CoastalWinds wrote: Mon Sep 16, 2019 8:14 pm
HomeStretch wrote: Mon Sep 16, 2019 8:11 pm Alternatively if there isn’t an international fund with a higher QDI %, you could hold your international allocation in your tax deferred account(s) and hold only VTSAX in your Taxable account.
Except those are already stuffed with fixed income/bonds per BH recommendations on tax-efficient fund placement.
You could hold munis in your taxable account. You have to weigh the tax impact of VTIAX ordinary dividends in Taxable versus munis in Taxable/international in tax deferred.

If you are contributing more each year to tax deferred than Taxable, in a few years you might have more room in tax deferred to hold international there.
visualguy
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by visualguy »

CoastalWinds wrote: Mon Sep 16, 2019 8:14 pm
HomeStretch wrote: Mon Sep 16, 2019 8:11 pm Alternatively if there isn’t an international fund with a higher QDI %, you could hold your international allocation in your tax deferred account(s) and hold only VTSAX in your Taxable account.
Except those are already stuffed with fixed income/bonds per BH recommendations on tax-efficient fund placement.
Also, no foreign tax credit available in tax-deferred accounts. Personally, I don't like holding ex-US in either type of account, so I just don't hold it :wink:
stan1
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by stan1 »

Make sure you calculate the $ amount involved for your personal situation. Dividend yields are low. Upon reflection you may decide this is something you don't need to worry about.
KlangFool
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by KlangFool »

CoastalWinds wrote: Mon Sep 16, 2019 8:04 pm The VG Total Intl Stock fund (VTIAX) has a pretty sizable chunk of non-qualified dividends (~25%) that get taxed at one’s marginal tax rate (when held in a taxable investment account). Compare this with the ~100% Qualified Dividend of the VG Total US Stock fund (VTSAX).
CoastalWinds,

VTIAX's dividend yield is about 3%. Do you have enough VTIAX in your taxable account for this to be a problem? I have 160K of VTIAX plus VFWAX in my taxable account. The dividend yield of my VTIAX/VFWAX is not big enough for this to matter to me. The non-qualified dividend of VTIAX/VFWAX is only $1,200 for me.

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Startled Cat
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by Startled Cat »

My understanding is that IXUS is more tax-efficient. I've moved a lot of my holdings from VXUS (ETF share class of VTIAX) to IXUS.

At one point I started a thread trying to understand where this difference in tax efficiency comes from, but it never got any replies.
Northern Flicker
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by Northern Flicker »

IXUS, IDEV, and IEFA are all more tax efficient than VXUS or VEA. IXUS and VXUS include emerging markets, the other three are developed markets.

IXUS holds 4342 stocks vs 7000+ for VXUS. There are 6396 stocks in the index being tracked by IXUS. Instead of using full replication I think it uses sampling and portfolio optimization to track its index. Such an optimizer will select a sample of stocks in the index that minimize tracking error subject to a bunch of constraints that ensure the index is tracked well (such as sector cap weights, sector betas, etc matching the index). There will be many constraints, but constraints can also be included to bias the portfolio to stocks with a higher percent of qualified dividends.

In years past, index funds had less assets under management and typically had to use sampling to get efficient implementations. Certainly, iShares is as experienced as anyone with the use of these techniques given their history with index fund management.
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michaeljmroger
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by michaeljmroger »

The last time I checked, SCHF looked like one of the most tax-efficient ex-US ETFs out there (it doesn’t include EM or small caps though, which is part of the reason it’s so efficient I believe).
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by Northern Flicker »

What percent of dividends of SCHF are qualified?
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CoastalWinds
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by CoastalWinds »

Northern Flicker wrote: Mon Sep 16, 2019 10:57 pm IXUS, IDEV, and IEFA are all more tax efficient than VXUS or VEA. IXUS and VXUS include emerging markets, the other three are developed markets.

IXUS holds 4342 stocks vs 7000+ for VXUS. There are 6396 stocks in the index being tracked by IXUS. Instead of using full replication I think it uses sampling and portfolio optimization to track its index. Such an optimizer will select a sample of stocks in the index that minimize tracking error subject to a bunch of constraints that ensure the index is tracked well (such as sector cap weights, sector betas, etc matching the index). There will be many constraints, but constraints can also be included to bias the portfolio to stocks with a higher percent of qualified dividends.

In years past, index funds had less assets under management and typically had to use sampling to get efficient implementations. Certainly, iShares is as experienced as anyone with the use of these techniques given their history with index fund management.
I’m having a hard time locating IXUS’: (a) dividend yield %, (b) and % qualified dividend income. Do you know where I can find this?
michaeljmroger
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by michaeljmroger »

Northern Flicker wrote: Tue Sep 17, 2019 2:01 am What percent of dividends of SCHF are qualified?
85% in 2017, 90% in 2016 (source).
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by pkcrafter »

Here is a link to an earlier discussion on total international tax efficiency.

viewtopic.php?t=234784

From the Wiki:
If all else is equal, international funds have a small tax advantage over US funds, because they are eligible for the foreign tax credit. All else is not necessarily equal; if an emerging market is reclassified as developed, an emerging-markets index fund will have to sell all its stock in that country, infrequently generating a large capital gain. A fund including both developed and emerging markets such as Vanguard FTSE All-World ex-US Index Fund or Vanguard Total International Index Fund avoids this risk.


https://www.bogleheads.org/wiki/Tax-eff ... _placement


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livesoft
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by livesoft »

CoastalWinds wrote: Tue Sep 17, 2019 8:51 am I’m having a hard time locating IXUS’: (a) dividend yield %, (b) and % qualified dividend income. Do you know where I can find this?
I googled "IXUS 2018 tax information" and there it was:
https://www.ishares.com/us/literature/t ... 716296.pdf
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Northern Flicker
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by Northern Flicker »

Here also is a summary of QDI for iShares:

https://www.ishares.com/us/literature/t ... 711553.pdf

SCHF also looks tax efficient but it also is just developed markets large and mid-cap equities. IShares products can provide small-cap exposure as well with IDEV at similar tax efficiency.
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by Northern Flicker »

If all else is equal, international funds have a small tax advantage over US funds, because they are eligible for the foreign tax credit.
All else typically is not equal. Int’l equities have a higher dividend yield and lower percentage of qualified dividends. States may tax all dividend income as regular income. For a US investor the tax efficiency relative to US equities must be evaluated on an individual basis, considering current and projected future tax brackets (you may not be able to switch strategies once there is a considerable embedded capital gain).
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by Northern Flicker »

A few points:

VEA and SCHF are developed markets and include Canada and S. Korea.

IDEV is developed markets and includes Canada but not S. Korea.

IEFA is developed markets and excludes both Canada and S. Korea.

IXUS and VXUS are total int’l, ie they include all developed and emerging markets.

All of the above include large and mid-caps. All but SCHF include small-caps.

Tax efficiency rankings:

(IEFA, IDEV) > SCHF > IXUS > VEA > VXUS

And that SCHF is more tax-efficient than IXUS is debatable.

An interesting option is to hold IDEV in a taxable account, and an EM fund in a tax-qualified account. This opens up different options for EM funds that are aligned with MSCI EM classifications and thus match up with IDEV (S. Korea is EM in MSCI indices so you don’t hold Korean equities in IDEV but will in an MSCI-aligned EM fund).

Possible EM pairings with IDEV:

IEMG is EM market index
EEMV is EM minimum volatility
VMMSX is EM actively managed large-cap value
If you have access to DFA EM funds they also are MSCI-aligned with respect to what countries are categorized as EM.
Last edited by Northern Flicker on Wed Sep 18, 2019 6:35 am, edited 1 time in total.
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by whodidntante »

I think the consensus is that IXUS has a better track record than the similar Vanguard fund tax-wise. But maybe I just thought so, and I agreed with myself.
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by Northern Flicker »

whodidntante wrote: Tue Sep 17, 2019 11:27 pm I think the consensus is that IXUS has a better track record than the similar Vanguard fund tax-wise. But maybe I just thought so, and I agreed with myself.
It unquestionably does. VXUS is better in a tax-qualified account though. VXUS pays lower foreign taxes and has a slightly lower risk of index tracking errors.
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by TropikThunder »

Northern Flicker wrote: Tue Sep 17, 2019 11:19 pm Tax efficiency rankings:

(IEFA, IDEV) > SCHF > IXUS > VEA > VXUS

And that SCHF is more tax-efficient than IXUS is debatable.
Can’t you show any numbers? You’ve obviously gone to the trouble to look up the various tax-efficiency parameters of all these funds (I mean, I assume you’re not just making it up). And based on some of the questions, not all of this information is easy to find (at least not easy for everyone). Given the number of data-driven people on this website, I would think including the actual rates for each fund would greatly help your argument (and omitting them makes your post simply an opinion).
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by Northern Flicker »

The numbers are easy to find online for iShares (already posted upthread) and Vanguard. Here is the relevant data:

https://www.ishares.com/us/literature/t ... 711553.pdf

https://personal.vanguard.com/us/insigh ... ncome-2018

The data is not easy to get for Schwab. I’m assuming the data posted in a thread referenced above is correct for SCHF. The difficulty I once had working with Schwab customer service to get QDI data for SCHC caused me to write off Schwab as a fund provider of interest to me.
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petulant
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by petulant »

Northern Flicker wrote: Tue Sep 17, 2019 11:19 pm A few points:

VEA and SCHF are developed markets and include Canada and S. Korea.

IDEV is developed markets and includes Canada but not S. Korea.

IEFA is developed markets and excludes both Canada and S. Korea.

IXUS and VXUS are total int’l, ie they include all developed and emerging markets.

All of the above include large and mid-caps. All but SCHF include small-caps.

Tax efficiency rankings:

(IEFA, IDEV) > SCHF > IXUS > VEA > VXUS

And that SCHF is more tax-efficient than IXUS is debatable.

An interesting option is to hold IDEV in a taxable account, and an EM fund in a tax-qualified account. This opens up different options for EM funds that are aligned with MSCI EM classifications and thus match up with IDEV (S. Korea is EM in MSCI indices so you don’t hold Korean equities in IDEV but will in an MSCI-aligned EM fund).

Possible EM pairings with IDEV:

IEMG is EM market index
EEMV is EM minimum volatility
VMMSX is EM actively managed large-cap value
If you have access to DFA EM finds they also are MSCI-aligned with respect to what countries are categorized as EM.
Thanks for setting it out like this. It's very helpful.
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by CoastalWinds »

whodidntante wrote: Tue Sep 17, 2019 11:27 pm I think the consensus is that IXUS has a better track record than the similar Vanguard fund tax-wise. But maybe I just thought so, and I agreed with myself.
I just did a 3-, 5-, and 10-year performance comparison (“growth of 10K”) on Morningstar, comparing VTIAX, VXUS, and IXUS. I was expecting similar results between all 3, but oddly it shows VTIAX wildly better than the other two. Seems like this is to be an error!?

ETA: it appears M* does not know how to handle the comparison of an ETF and MF, b/c when I remove VTIAX from the comparison then I see the tight tracking of VXUS and IXUS.
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by jimishooch »

i believe VTMGX is 80% QDI and holds no EM.
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by Northern Flicker »

CoastalWinds wrote: Wed Sep 18, 2019 10:22 am
whodidntante wrote: Tue Sep 17, 2019 11:27 pm I think the consensus is that IXUS has a better track record than the similar Vanguard fund tax-wise. But maybe I just thought so, and I agreed with myself.
I just did a 3-, 5-, and 10-year performance comparison (“growth of 10K”) on Morningstar, comparing VTIAX, VXUS, and IXUS. I was expecting similar results between all 3, but oddly it shows VTIAX wildly better than the other two. Seems like this is to be an error!?

ETA: it appears M* does not know how to handle the comparison of an ETF and MF, b/c when I remove VTIAX from the comparison then I see the tight tracking of VXUS and IXUS.
IXUS was launched in 2012. 10-yr returns for VTIAX have more years of returns incorporated.
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by Northern Flicker »

TropikThunder wrote: Wed Sep 18, 2019 2:04 am
Northern Flicker wrote: Tue Sep 17, 2019 11:19 pm Tax efficiency rankings:

(IEFA, IDEV) > SCHF > IXUS > VEA > VXUS

And that SCHF is more tax-efficient than IXUS is debatable.
Can’t you show any numbers? You’ve obviously gone to the trouble to look up the various tax-efficiency parameters of all these funds (I mean, I assume you’re not just making it up). And based on some of the questions, not all of this information is easy to find (at least not easy for everyone). Given the number of data-driven people on this website, I would think including the actual rates for each fund would greatly help your argument (and omitting them makes your post simply an opinion).
A valid criticism is that it can be dependent on tax brackets, state and federal, because total int’l has a lower dividend yield than developed markets index funds.
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Northern Flicker
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by Northern Flicker »

Since inception of IXUS:

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D

Eliminate the first month of operation of IXUS when it is ramping up:

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D

I would mention that the index tracked by the Vanguard fund changed during this period to include N-chips like Alibaba. These were held from inception by IXUS.
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Northern Flicker
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by Northern Flicker »

Northern Flicker wrote: Tue Sep 17, 2019 11:19 pm A few points:

VEA and SCHF are developed markets and include Canada and S. Korea.

IDEV is developed markets and includes Canada but not S. Korea.

IEFA is developed markets and excludes both Canada and S. Korea.

IXUS and VXUS are total int’l, ie they include all developed and emerging markets.

All of the above include large and mid-caps. All but SCHF include small-caps.

Tax efficiency rankings:

(IEFA, IDEV) > SCHF > IXUS > VEA > VXUS

And that SCHF is more tax-efficient than IXUS is debatable.

An interesting option is to hold IDEV in a taxable account, and an EM fund in a tax-qualified account. This opens up different options for EM funds that are aligned with MSCI EM classifications and thus match up with IDEV (S. Korea is EM in MSCI indices so you don’t hold Korean equities in IDEV but will in an MSCI-aligned EM fund).

Possible EM pairings with IDEV:

IEMG is EM market index
EEMV is EM minimum volatility
VMMSX is EM actively managed large-cap value
If you have access to DFA EM funds they also are MSCI-aligned with respect to what countries are categorized as EM.
A minor correction above is that FTSE reclassified Poland as a developed market, so VEA and SCHF would hold Polish equities, and VWO would not.

If you compare the performance of VEA and IDEV in a backtest, the performance of Korean equities will lead to divergence at times. If you include EWY (S Korea index fund) in the growth chart with VEA and IDEV, you will see that the underperformance of VEA relative to IDEV in recent years is from the underperformance of Korean equities during the period.
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by catalina355 »

Northern Flicker wrote: Wed Sep 18, 2019 4:18 pm
TropikThunder wrote: Wed Sep 18, 2019 2:04 am
Northern Flicker wrote: Tue Sep 17, 2019 11:19 pm Tax efficiency rankings:

(IEFA, IDEV) > SCHF > IXUS > VEA > VXUS

And that SCHF is more tax-efficient than IXUS is debatable.
Can’t you show any numbers? You’ve obviously gone to the trouble to look up the various tax-efficiency parameters of all these funds (I mean, I assume you’re not just making it up). And based on some of the questions, not all of this information is easy to find (at least not easy for everyone). Given the number of data-driven people on this website, I would think including the actual rates for each fund would greatly help your argument (and omitting them makes your post simply an opinion).
A valid criticism is that it can be dependent on tax brackets, state and federal, because total int’l has a lower dividend yield than developed markets index funds.
Given that:

Developed Markets Index Fund 81%
FTSE All-World ex-US Index Fund 80%
Total International Stock Index Fund 75%
iShares Core MSCI EAFE ETF 92%

Is it really going to make a significant difference to one's tax situation or ability to do Roth conversions?
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by catalina355 »

CoastalWinds wrote: Mon Sep 16, 2019 8:04 pm The VG Total Intl Stock fund (VTIAX) has a pretty sizable chunk of non-qualified dividends (~25%) that get taxed at one’s marginal tax rate (when held in a taxable investment account). Compare this with the ~100% Qualified Dividend of the VG Total US Stock fund (VTSAX).

While I understand it provides some relief in the form of a foreign tax credit, this non-qualified portion takes up precious space in the ordinary income brackets, thus limiting the amount of space available to do Roth conversions, etc. This becomes especially relevant as one’s taxable portfolio gets large and holds a significant amount of VTIAX.

Is there a more tax-efficient broad-based international Index fund or ETF, either in VG or Fidelity’s lineup? Preferably one that has ~100% qualified dividends (with a similar or lower dividend yield and avoids capital gains until I sell).

Thank you.
viewtopic.php?t=208818

Rank List:

VGIT 0.27
IEMG 0.32
IJS 0.36
VWO 0.38
EEMS 0.44
ITOT 0.46
IXUS 0.47
VTI 0.49
VV 0.50
VBR 0.50
VOE 0.50
VOO 0.51
BND 0.52
VSS 0.52
VXUS 0.52
VEU 0.53
VEA 0.55
EFV 0.61
VTV 0.64
SCZ 0.70
VCIT 0.77
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by Northern Flicker »

Given that:

Developed Markets Index Fund 81%
FTSE All-World ex-US Index Fund 80%
Total International Stock Index Fund 75%
iShares Core MSCI EAFE ETF 92%

Is it really going to make a significant difference to one's tax situation or ability to do Roth conversions?
It is not a dramatic difference. I was just answering the question that was asked. A developed markets index fund like VEA has a dividend yield of about 2.9%. If 11% of that is the unqualified income that would have been qualified if IDEV or IEFA were held, that is 11% of 290 or about 32 bp of unqualified dividends that would have been qualified if IDEV or IEFA were used. Ignoring the foreign tax credit, the difference between regular income tax rates and QDI tax rates are such that this will work out to be around 3 bp per year for many investors, give or take depending on particular tax bracket (but a little more for high earners). I certainly would not hold a fund that deviated from what was best for my situation to save 3 bp of ER and I would not do so for 3 bp of tax drag either.
Last edited by Northern Flicker on Wed Sep 25, 2019 1:39 am, edited 2 times in total.
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by catalina355 »

Northern Flicker wrote: Tue Sep 24, 2019 6:29 pm
Given that:

Developed Markets Index Fund 81%
FTSE All-World ex-US Index Fund 80%
Total International Stock Index Fund 75%
iShares Core MSCI EAFE ETF 92%

Is it really going to make a significant difference to one's tax situation or ability to do Roth conversions?
It is not a dramatic difference. I was just answering the question that was asked. A developed markets index fund like VEA has a dividend yield of about 2.9% if the 11% of that is unqualifed income, that is 11% of 290 or about 32 bp of unqualified dividends that would have been qualified if IDEV or IEFA were used. Ignoring the foreign tax credit, the difference between regular income tax rates and QDI tax rates are such that this will work out to be around 3 bp per year for many investors, give or take depending on particular tax bracket (but a little more for high earners). I certainly would not hold a fund that deviated from what was best for my situation to save 3 bp of ER and I would not do so for 3 bp of tax drag either.
I understand you were answering the question. I wanted to continue the discussion and quantify the differences. Thank you for doing that.
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Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by grabiner »

catalina355 wrote: Tue Sep 24, 2019 7:08 am viewtopic.php?t=20881

Rank List:

VGIT 0.27
IEMG 0.32
IJS 0.36
VWO 0.38
EEMS 0.44
ITOT 0.46
IXUS 0.47
VTI 0.49
VV 0.50
VBR 0.50
VOE 0.50
VOO 0.51
BND 0.52
VSS 0.52
VXUS 0.52
VEU 0.53
VEA 0.55
EFV 0.61
VTV 0.64
SCZ 0.70
VCIT 0.77
Note that this is only the current tax cost; you will also pay tax on any capital gains when you sell. This makes bond funds more tax-efficient than stock funds with the same current tax cost, as they can be sold with little or no capital gain. The low current yields of bonds thus make bonds in taxable better than stocks in many tax brackets. If yields rise, you can sell your bond funds (likely for a capital loss) to switch to stocks in taxable.

The decision between bonds and stocks, or US and international, may also be dictated by the options in your retirement plans. I hold VSS (Vanguard FTSE All-World Ex-US) in my taxable account, not because it is particularly good there, but because I don't have it as an option in my employer plans, and my Roth IRA has things which are even less tax-efficient.
Wiki David Grabiner
Startled Cat
Posts: 513
Joined: Thu Apr 03, 2008 8:54 pm

Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by Startled Cat »

SCHF looks pretty good based on 2019 QDI numbers. It paid 90% qualified dividends, versus 84% for IEFA and 82% for IDEV. It also has a lower dividend yield than either iShares alternative, if Morningstar is to be believed (3.43% TTM vs. 3.71% for either IEFA or IDEV).

SCHE (emerging markets) also fared quite well with 63% QDI, beating IEMG's 49%.

A mix 75% SCHF and 25% SCHE would have 83% QDI in 2019, beating IXUS's 73%. This approach seems worth considering. The weighted average expense ratio would also be 2 bps lower (not enough to matter, but interesting nonetheless).

That said, both IEFA and IDEV had 91-92% QDI in 2018 and IXUS had 85%, so 2019 may just be an anomaly. I can't find 2018 numbers for the Schwab funds to compare.

Another interesting fact I notice is that FNDF (Schwab Fundamental International Large Company Index ETF) had 100% QDI in 2019. It has a relatively high expense ratio of 0.25%, and being a value fund, it has a higher dividend yield than the vanilla index funds, so it wouldn't make sense to choose it solely for tax reasons. But if one separately decided to tilt to value, it could be a good choice for a taxable account.

I still think a tax-managed international ETF aiming for low dividend yield and 100% QDI would fill a major niche.
Chip
Posts: 3077
Joined: Wed Feb 21, 2007 4:57 am

Re: Looking for a More Tax-Efficient Intl Index Fund than Vanguard Total International (VTIAX)?

Post by Chip »

Startled Cat wrote: Sun Jun 28, 2020 12:00 pm That said, both IEFA and IDEV had 91-92% QDI in 2018 and IXUS had 85%, so 2019 may just be an anomaly. I can't find 2018 numbers for the Schwab funds to compare.
SCHF had 94% QDI in 2018. FNDF was 97%. Those are my numbers from my 1099-DIV. As you found out, Schwab's numbers are hard or impossible to get online.

Foreign tax credit as a % of total dividends was 9.1% for SCHF and 8.4% for FNDF.
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