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triceratop
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Re: VXUS vs VWO + VEA [Number of Holdings]

Post by triceratop »

It is not even a matter of number of holdings; the index coverage is different. VWO holds Chinese A-shares while VXUS does not.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."
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simplesauce
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Re: VXUS vs VWO + VEA [Number of Holdings]

Post by simplesauce »

triceratop wrote:It is not even a matter of number of holdings; the index coverage is different. VWO holds Chinese A-shares while VXUS does not.
Right. So why own VXUS when it's not fully representative? Is the only reason for simplicity?
TropikThunder
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Re: VXUS vs VWO + VEA [Number of Holdings]

Post by TropikThunder »

simplesauce wrote:
triceratop wrote:It is not even a matter of number of holdings; the index coverage is different. VWO holds Chinese A-shares while VXUS does not.
Right. So why own VXUS when it's not fully representative? Is the only reason for simplicity?
"Fully representative" is not automatically an achievable or desirable goal in and of itself. Take Total Bond Market for example. The index, Bloomberg Barclays U.S. Aggregate Float Adjusted Index, covers the "investment grade, US dollar-denominated, fixed-rate taxable bond market". By definition, this excludes the below-investment grade, non-USD-denominated, non-taxable, adjustable-coupon bond market. If all one was concerned with was ultimate diversification, then one wouldn't hold Total Bond due to these exclusions. However, the excluded bonds have different risk characteristics that may or may not be rewarded, and an informed investor may or may not wish to include them. An investor who excludes high-yield (junk) bonds should not be criticized as insufficiently diversified.

Similarly, the main difference between VXUS and VEA/VWO is China A shares. The mainland Chinese market has significant (often unique) political, regulatory, economic, liquidity, and transparency issues that informed investors may not wish to be exposed to. Avoiding these stocks for these reasons is not flawed diversification. For that matter, why stop at VEA + VWO? You're excluding Frontier Markets! :twisted:
Dominic
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Re: VXUS vs VWO + VEA [Number of Holdings]

Post by Dominic »

simplesauce wrote:
triceratop wrote:It is not even a matter of number of holdings; the index coverage is different. VWO holds Chinese A-shares while VXUS does not.
Right. So why own VXUS when it's not fully representative? Is the only reason for simplicity?
Some people actively dislike China A shares. Other people (such as myself) could take them or leave them. They only represent one market segment of one country, so missing them is not going to make or break a portfolio.

A shares are very tightly regulated. They are only allowed to be traded by Chinese nationals (except for select foreign investors who can own them with a lot of strings attached). Moreover, the government owns a lot of the shares, so they can manipulate their prices pretty heavily. This often results in A shares trading at a substantial premium to H shares of the same companies.

That said, I suspect that the primary reason Vanguard's Total International funds do not track an index which includes A shares is because it's impractical. As I alluded to earlier, A shares require the Chinese government to allow a fund to trade them, and VXUS owns hundreds of billions of dollars worth of assets. The Chinese government might be uncomfortable letting Vanguard buy so many A shares, or Vanguard might be uncomfortable owning so many A shares because their regulations make them relatively illiquid.
simplesauce
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Re: VXUS vs VWO + VEA [Number of Holdings]

Post by simplesauce »

Dominic wrote:
simplesauce wrote:
triceratop wrote:It is not even a matter of number of holdings; the index coverage is different. VWO holds Chinese A-shares while VXUS does not.
Right. So why own VXUS when it's not fully representative? Is the only reason for simplicity?
Some people actively dislike China A shares. Other people (such as myself) could take them or leave them. They only represent one market segment of one country, so missing them is not going to make or break a portfolio.

A shares are very tightly regulated. They are only allowed to be traded by Chinese nationals (except for select foreign investors who can own them with a lot of strings attached). Moreover, the government owns a lot of the shares, so they can manipulate their prices pretty heavily. This often results in A shares trading at a substantial premium to H shares of the same companies.

That said, I suspect that the primary reason Vanguard's Total International funds do not track an index which includes A shares is because it's impractical. As I alluded to earlier, A shares require the Chinese government to allow a fund to trade them, and VXUS owns hundreds of billions of dollars worth of assets. The Chinese government might be uncomfortable letting Vanguard buy so many A shares, or Vanguard might be uncomfortable owning so many A shares because their regulations make them relatively illiquid.
Just to confirm, the only difference by using VXUS is missing out
on the China A-shares? That equates to over 2,000 stocks?
Dominic
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Re: VXUS vs VWO + VEA [Number of Holdings]

Post by Dominic »

simplesauce wrote:
Dominic wrote:
simplesauce wrote:
triceratop wrote:It is not even a matter of number of holdings; the index coverage is different. VWO holds Chinese A-shares while VXUS does not.
Right. So why own VXUS when it's not fully representative? Is the only reason for simplicity?
Some people actively dislike China A shares. Other people (such as myself) could take them or leave them. They only represent one market segment of one country, so missing them is not going to make or break a portfolio.

A shares are very tightly regulated. They are only allowed to be traded by Chinese nationals (except for select foreign investors who can own them with a lot of strings attached). Moreover, the government owns a lot of the shares, so they can manipulate their prices pretty heavily. This often results in A shares trading at a substantial premium to H shares of the same companies.

That said, I suspect that the primary reason Vanguard's Total International funds do not track an index which includes A shares is because it's impractical. As I alluded to earlier, A shares require the Chinese government to allow a fund to trade them, and VXUS owns hundreds of billions of dollars worth of assets. The Chinese government might be uncomfortable letting Vanguard buy so many A shares, or Vanguard might be uncomfortable owning so many A shares because their regulations make them relatively illiquid.
Just to confirm, the only difference by using VXUS is missing out
on the China A-shares? That equates to over 2,000 stocks?
I looked at the holdings for both funds, and from what I could tell, there were enough A shares to account for about 2000 stocks.
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