Vanguard FTSE All-World ex-US Small-Cap ETF

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
gkaplan
Posts: 7034
Joined: Sat Mar 03, 2007 8:34 pm
Location: Portland, Oregon

Vanguard FTSE All-World ex-US Small-Cap ETF

Post by gkaplan » Fri Mar 27, 2015 6:13 pm

Vanguard FTSE All-World ex-US Small-Cap ETF (VSS) is one of the most diversified small-cap international equity funds. It tracks the market-cap-weighted FTSE Global Small-Cap ex-US Index, which includes 3,300 small-cap companies from both developed and emerging markets. With an annual expense ratio of 0.19%, this fund is also, by far, one of the cheapest vehicles for exposure to foreign small caps.

The main reason to own international small caps is diversification. Many international large caps ... tend to be global multinationals that compete directly with their U.S.-based counterparts. International small caps, on the other hand, tend to generate a greater share of revenue in their respective domestic markets. As a result, a portfolio of international small caps has historically offered more diversification benefits, relative to a portfolio of international large caps, for a U.S.-based investor.

Investors usually perceive small caps as being more risky.... However, this small-cap fund is not much more volatile than a corresponding large-cap index. Over the trailing five years through February 2015, the standard deviation for the FTSE Global Small Cap ex US Index was 17.6%, whereas for the FTSE All World ex US Index, the corresponding figure was 16.6%. One reason for this is that small caps from different countries tend to be fairly uncorrelated. This helps mitigate volatility in a geographically diversified fund such as VSS. A U.S. small-cap fund only holds U.S. small caps. In addition, U.S. small caps tend to have a greater exposure to young, risky, and potentially high-growth companies. Outside the United States, small-cap companies tend to be more established, less volatile companies that just happen to be small.

Like most of its peers, this fund does not hedge its currency exposure, so its returns reflect both asset-price changes and changes in exchange rates between the U.S. dollar and other currencies. During periods of high volatility in the global markets, the U.S. dollar tends to rise, which would weigh on the short-term returns of this fund. But over the long term, currency volatility comprises a small portion of the total risk for this portfolio....
http://news.morningstar.com/articlenet/ ... ?id=690504

Gordon

User avatar
galeno
Posts: 1576
Joined: Fri Dec 21, 2007 12:06 pm

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by galeno » Fri Mar 27, 2015 6:34 pm

This is a great ETF. So is VB. I wish Ireland-UK Vanguard would combine the two into an all world small cap index ETF.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

User avatar
Leif
Posts: 2758
Joined: Wed Sep 19, 2007 4:15 pm

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by Leif » Fri Mar 27, 2015 7:27 pm

The fees have dropped considerably from the time the fund came out.

See earlier posting

Vanguard also has an investor class fund, VFSVX. Although the ER is higher then the ETF, the purchase fee is now gone and the ER has dropped. I would rather deal with a fund then an ETF.

User avatar
Blue
Posts: 1161
Joined: Sat Jul 12, 2008 10:18 pm

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by Blue » Fri Mar 27, 2015 7:58 pm

I wish they had admiral shares for the MF.

User avatar
Leif
Posts: 2758
Joined: Wed Sep 19, 2007 4:15 pm

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by Leif » Fri Mar 27, 2015 11:14 pm

Blue wrote:I wish they had admiral shares for the MF.
Hopefully that will come when the fund has reached a certain size. They are at $2.7 billion now. That is a respectable size.

User avatar
steve roy
Posts: 1732
Joined: Thu May 13, 2010 5:16 pm

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by steve roy » Sat Mar 28, 2015 12:05 am

I've owned this ETF for some time. It's half of my foreign asset allocation, and I'm fine with it. I'll be purchasing more over the next two years. A lot more.

jd88
Posts: 33
Joined: Sun Mar 04, 2012 6:33 pm
Location: SF Bay Area

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by jd88 » Sat Mar 28, 2015 2:15 am

Leif wrote:
Blue wrote:I wish they had admiral shares for the MF.
Hopefully that will come when the fund has reached a certain size. They are at $2.7 billion now. That is a respectable size.
Are there data points for around what AUM VG has created Admiral shares previously? Intl Small Cap is an area I don't own currently, and would love to rectify that. I'd generally prefer the fund, but thats a decent fee gap.

User avatar
G-Money
Posts: 2867
Joined: Sun Dec 09, 2007 7:12 am

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by G-Money » Sat Mar 28, 2015 4:27 am

jd88,

The most recent example is the Vanguard Global ex-US Real Estate Index Fund. It has total assets of $3.0 billion, with about $2.5 billion in the ETF share class. It added an Admiral Share class last February.

In comparison, Vanguard's All-World ex-US Small Cap Index Fund has total assets of about $2.7 billion, $2.2 billion of which are in the ETF share class. So maybe we're getting close, but there's really no way to know.
Don't assume I know what I'm talking about.

User avatar
abuss368
Posts: 17082
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by abuss368 » Sat Mar 28, 2015 11:57 am

Hi Gordon,

Thanks for the update. I don't invest in small caps but rather U.S. and International REITs.

Best.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

tj
Posts: 2761
Joined: Thu Dec 24, 2009 12:10 am

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by tj » Sun Mar 29, 2015 12:31 pm

who knows how they determine hwen admiral shares is feasible.

Total World has 6.6 billion with 913 million in the mutual fund version
Dividend Growth has 24.4 billion and no admiral shares.

User avatar
SteelyEyed
Posts: 308
Joined: Sun Jun 14, 2009 10:34 am

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by SteelyEyed » Sun Mar 29, 2015 1:18 pm

Leif wrote:Vanguard also has an investor class fund, VFSVX.
Blue wrote:I wish they had admiral shares for the MF.
I once started a poll about the institutional fund: BH.org Thread

Here is a link to the VG page: VG Site

The fund is still quite small, even two years later. I would still love to have access to that one though. The ER is 0.18%, which is slightly lower than VSS and there is no bid/ask spread!

User avatar
Leif
Posts: 2758
Joined: Wed Sep 19, 2007 4:15 pm

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by Leif » Sun Mar 29, 2015 11:03 pm

SteelyEyed wrote:
Leif wrote:Vanguard also has an investor class fund, VFSVX.
Blue wrote:I wish they had admiral shares for the MF.
I once started a poll about the institutional fund: BH.org Thread

Here is a link to the VG page: VG Site

The fund is still quite small, even two years later. I would still love to have access to that one though. The ER is 0.18%, which is slightly lower than VSS and there is no bid/ask spread!
Since my investment in this class is 8% and the minimum investment is $5,000,000, I guess I'll need to wait for my portfolio to grow to $60,000,000 before I start investing. That might be a while. However, I would say those with access through as 401K or other corporate plan may find it a bit easier to invest in this fund.

User avatar
Runalong
Posts: 138
Joined: Mon Jun 13, 2011 5:22 pm

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by Runalong » Wed Apr 01, 2015 12:52 pm

FWIW: VINEX has outperformed VFSVX and VSS over the past five years.

I chose VINEX on the theory (data-free but intuitively sensible!) that foreign small caps are not as efficiently traded as is, say, the S&P 500, and therefore a good manager can still find value in this market and beat the index.

Undoubtedly this won't hold true forever but so far so good.

jay22
Posts: 713
Joined: Thu Aug 23, 2012 8:56 am
Location: Sacramento, CA

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by jay22 » Wed Apr 01, 2015 1:22 pm

Runalong wrote:FWIW: VINEX has outperformed VFSVX and VSS over the past five years.

I chose VINEX on the theory (data-free but intuitively sensible!) that foreign small caps are not as efficiently traded as is, say, the S&P 500, and therefore a good manager can still find value in this market and beat the index.

Undoubtedly this won't hold true forever but so far so good.
Do you mean to say that all your international exposure is in VINEX?

User avatar
grabiner
Advisory Board
Posts: 25648
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by grabiner » Wed Apr 01, 2015 9:42 pm

Runalong wrote:FWIW: VINEX has outperformed VFSVX and VSS over the past five years.

I chose VINEX on the theory (data-free but intuitively sensible!) that foreign small caps are not as efficiently traded as is, say, the S&P 500, and therefore a good manager can still find value in this market and beat the index.

Undoubtedly this won't hold true forever but so far so good.
I held International Explorer for several years because it was the least expensive international small-cap fund.

But when ETFs became available, I switched even though GWX (iShares International Small Cap) was more expensive than International Explorer, because I could hold GWX in my taxable account, freeing up room in my IRA for other things. I switched to VSS when it opened.

Thus, my preference for index ETFs over International Explorer is primarily a tax issue. I don't have a strong preference for index over active funds in tax-deferred accounts, and have chosen active over index at times (for example, I used to hold Windsor in a 403(b)).
Wiki David Grabiner

ANC
Posts: 140
Joined: Sat Mar 01, 2014 7:59 pm

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by ANC » Thu Apr 02, 2015 2:20 am

This is the third thread I have seen on these funds in the last week, which has gotten me to think about a few issues here. (FWIW, I recently sold my dedicated fund in this area and moved to a broader based strategy.)

Performance and ability to index
----------------------------------------------
I took a good look at VINEX (Explorer) in 2004 and went with another active fund that turned out to have had somewhat better results in the 10 years since (PRIDX). For VSS and VFSVX, M* shows category ranks well below the median.

VSS is only 5 years old, much younger than emerging market index funds which go back 20 years for VEIEX and 10 years for VWO. This may indicate the area is hard to index.

A role for active management?
------------------------------------------
Active managers argue that country idiosyncrasies favor their funds in international. This turns out not to be the case for stocks like Toyota and Nestle, but I wonder if that's the case here, since the companies in these funds are said to sell more to their home markets.

Small cap effect
------------------------
This seems to be lower here than in the US, per the M* article cited above. Could it be the case that the companies with lower and more volatile earnings, which help small cap US returns, have trouble finding underwriters abroad. This could be particularly true in Europe which seems to be underweight at around 25% in most of these funds.

What does the evidence show on this category? Does it address the above concerns?

User avatar
nisiprius
Advisory Board
Posts: 39750
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by nisiprius » Thu Apr 02, 2015 6:40 am

...Investors usually perceive small caps as being more risky.... However, this small-cap fund is not much more volatile than a corresponding large-cap index...
Everyone who talks about investments really ought to have a jar with a slot in the lid, and drop a quarter into it every time they use the present tense when they mean the past.

Morningstar meant to say "this small-cap fund has not been much more volatile than a corresponding large-cap index."
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
grabiner
Advisory Board
Posts: 25648
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by grabiner » Thu Apr 02, 2015 9:12 pm

nisiprius wrote:
...Investors usually perceive small caps as being more risky.... However, this small-cap fund is not much more volatile than a corresponding large-cap index...
Everyone who talks about investments really ought to have a jar with a slot in the lid, and drop a quarter into it every time they use the present tense when they mean the past.

Morningstar meant to say "this small-cap fund has not been much more volatile than a corresponding large-cap index."
And this particular small-cap fund hasn't been around for a bear market; it started in April 2009. GWX was the only international small-cap ETF during the 2007-2009 crash; it lost more in 2008 and gained more in 2009 than the EAFE index. VSS would probably have been even more volatile because it also included emerging markets.
Wiki David Grabiner

letsgobobby
Posts: 12074
Joined: Fri Sep 18, 2009 1:10 am

Deleted

Post by letsgobobby » Wed Jul 12, 2017 1:20 am

Deleted
Last edited by letsgobobby on Mon Dec 23, 2019 10:51 pm, edited 1 time in total.

User avatar
triceratop
Posts: 5838
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by triceratop » Wed Jul 12, 2017 1:33 am

letsgobobby wrote:Any current thoughts re:

- Advisability of ETF vs MF? For a taxable account? For an IRA with RMDs?

- likelihood of Admiral shares being offered any time soon?

- whether there is a clearly better international small option, including a non Vanguard option. There are DFA adherents and DISVX has done well but the added cost of an advisor probably makes this a no go for me.
The ETF is still much cheaper than the investor shares mutual fund. The last time I talked to Vanguard they said there were no plans to make an admiral shares version. For a taxable account it has a low qualified dividends percentage, making it expensive. How expensive? See this thread: viewtopic.php?t=208818. I wouldn't worry about it in an IRA with RMDs.

It is always an option to purchase the mutual fund at NAV and regularly convert the shares to ETFs for the lower cost.

I don't think there is a better market-cap international small option. However, if you want small and value, then maybe look at FNDC; but be aware that that fund is developed markets only. What makes VSS nice is it has cheap exposure to global small stocks.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

livesoft
Posts: 69587
Joined: Thu Mar 01, 2007 8:00 pm

Re: Vanguard FTSE All-World ex-US Small-Cap ETF

Post by livesoft » Wed Jul 12, 2017 5:08 am

VSS / VFSVX has been my major holding this year. I own both share classes because of the convenience. I think it is the best option, but doesn't Schwab have an international small cap (maybe fundamental) now?
Wiki This signature message sponsored by sscritic: Learn to fish.

Post Reply