Vanguard Total International Stock Index Fund

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Shem002
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Vanguard Total International Stock Index Fund

Post by Shem002 » Mon Jan 21, 2019 11:44 am

I am having trouble wrapping my head around this and thought I would try to get some answers.
1. If VTIAX is traded on the NASDAQ, are its holdings traded on US market as well?
2. If #1 is true then Vanguard Total Stock Market Index Fund (VTSAX) includes these international companies already?
3. If #2 is false and these companies are not traded on the US market but (VTIAX) is can individuals time the market with ETF version (VXUS) since they can see what happened overnight in the Asian markets?

Just having trouble making sense of all this.

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David Jay
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Re: Vanguard Total International Stock Index Fund

Post by David Jay » Mon Jan 21, 2019 12:43 pm

1. VTIAX is not “traded”, it is a mutual fund. You may be confusing it for VXUS, the ETF (exchange traded fund) version of the same fund. In general the holdings of an ETF have nothing whatsoever to do with the exchange on which the ETF is traded. An ETF is not even limited to holding stocks. An ETF can, for example, hold gold or other commodities.

2. I do not understand your question here, VTSAX only holds US companies, it is the complementary fund to VTIAX (VTSAX = US, VTIAX = everything else, VTSAX + VTIAX = the global market).

3. All ETFs can be used to try to time the market. That is one of the reasons that Jack Bogle disliked the introduction of ETFs, they can lead unskilled investors to try to time the market.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Shem002
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Re: Vanguard Total International Stock Index Fund

Post by Shem002 » Mon Jan 21, 2019 12:50 pm

David Jay wrote:
Mon Jan 21, 2019 12:43 pm
1. VTIAX is not “traded”, it is a mutual fund. You may be confusing it for VXUS, the ETF (exchange traded fund) version of the same fund. In general the holdings of an ETF have nothing whatsoever to do with the exchange on which the ETF is traded. An ETF is not even limited to holding stocks. An ETF can, for example, hold gold or other commodities.

2. I do not understand your question here, VTSAX only holds US companies, it is the complementary fund to VTIAX (VTSAX = US, VTIAX = everything else, VTSAX + VTIAX = the global market).

3. All ETFs can be used to try to time the market. That is one of the reasons that Jack Bogle disliked the introduction of ETFs, they can lead unskilled investors to try to time the market.
If VTSAX is an index that mimics the entire US stock market (NYSE & NASDAQ) it seems like that it would include the international companies that trade on those exchanges is what I am trying to wrap my head around

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David Jay
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Re: Vanguard Total International Stock Index Fund

Post by David Jay » Mon Jan 21, 2019 12:55 pm

Shem002 wrote:
Mon Jan 21, 2019 11:44 am
...can individuals time the market with ETF version (VXUS) since they can see what happened overnight in the Asian markets?
Yes, but so can all of the big brokerage houses with research departments, worldwide offices, supercomputers and fat pipes directly to the trading houses.

Where is your advantage over the professionals?
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Shem002
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Re: Vanguard Total International Stock Index Fund

Post by Shem002 » Mon Jan 21, 2019 12:57 pm

David Jay wrote:
Mon Jan 21, 2019 12:55 pm
Shem002 wrote:
Mon Jan 21, 2019 11:44 am
...can individuals time the market with ETF version (VXUS) since they can see what happened overnight in the Asian markets?
Yes, but so can all of the big brokerage houses with research departments, worldwide offices, supercomputers and fat pipes directly to the trading houses.

Where is your advantage over the professionals?
There is no advantage I am not a market timer

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Dialectical Investor
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Re: Vanguard Total International Stock Index Fund

Post by Dialectical Investor » Mon Jan 21, 2019 1:01 pm

Shem002 wrote:
Mon Jan 21, 2019 11:44 am

3. If #2 is false and these companies are not traded on the US market but (VTIAX) is can individuals time the market with ETF version (VXUS) since they can see what happened overnight in the Asian markets?
This is a form of arbitrage. As a counter, research "fair value pricing."

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JoMoney
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Re: Vanguard Total International Stock Index Fund

Post by JoMoney » Mon Jan 21, 2019 1:06 pm

Some of the "international stocks" are traded on a U.S. exchange as ADR's
A Total 'US' index would not include these in it's index.
During periods that the U.S. market is open, but foreign markets are closed, it's likely that if the ETF was trading lower or higher the foreign market would open higher or lower as well, with the U.S. ETF serving as a proxy during the period the foreign market was closed. There are also futures markets trading much of the time anyway...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

DaufuskieNate
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Re: Vanguard Total International Stock Index Fund

Post by DaufuskieNate » Mon Jan 21, 2019 1:07 pm

Shem002 wrote:
Mon Jan 21, 2019 12:50 pm

If VTSAX is an index that mimics the entire US stock market (NYSE & NASDAQ) it seems like that it would include the international companies that trade on those exchanges is what I am trying to wrap my head around
The answers to questions like this are normally found in the details of the fund and the indexes they track. VTSAX indexes to the CRSP US Total Market Index.

The CRSP website has this to say about this index: "The CRSP Indexes are designed to represent the market of investable US equity securities. They encompass equity securities including common stocks and real estate investment trusts (REITs) of US companies that are listed on a CRSP exchange of interest — NYSE, NYSE American, NYSE ARCA, NASDAQ, Cboe Global Markets, and the Investors Exchange (IEX)."

So, the index is comprised of U.S. companies and would not include non-U.S. companies that are traded on U.S. exchanges.

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Ben Mathew
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Re: Vanguard Total International Stock Index Fund

Post by Ben Mathew » Mon Jan 21, 2019 1:07 pm

Shem002 wrote:
Mon Jan 21, 2019 12:50 pm
If VTSAX is an index that mimics the entire US stock market (NYSE & NASDAQ) it seems like that it would include the international companies that trade on those exchanges
To understand your question better, can you provide an example of an international company that's trading on U.S. exchanges? Are you perhaps thinking of ADRs? These which would not be included in VTSAX.

dkturner
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Re: Vanguard Total International Stock Index Fund

Post by dkturner » Mon Jan 21, 2019 1:27 pm

Shem002 wrote:
Mon Jan 21, 2019 12:50 pm
David Jay wrote:
Mon Jan 21, 2019 12:43 pm
1. VTIAX is not “traded”, it is a mutual fund. You may be confusing it for VXUS, the ETF (exchange traded fund) version of the same fund. In general the holdings of an ETF have nothing whatsoever to do with the exchange on which the ETF is traded. An ETF is not even limited to holding stocks. An ETF can, for example, hold gold or other commodities.

2. I do not understand your question here, VTSAX only holds US companies, it is the complementary fund to VTIAX (VTSAX = US, VTIAX = everything else, VTSAX + VTIAX = the global market).

3. All ETFs can be used to try to time the market. That is one of the reasons that Jack Bogle disliked the introduction of ETFs, they can lead unskilled investors to try to time the market.
If VTSAX is an index that mimics the entire US stock market (NYSE & NASDAQ) it seems like that it would include the international companies that trade on those exchanges is what I am trying to wrap my head around

There is a bit of inconsistency associated with U.S. companies and International companies and their inclusion in either VTSAX or VTIAX.

As a general rule International companies don’t actually trade on U.S. exchanges. American Depositary Receipts representing shares of those International companies are listed instead and ADRs are usually excluded from VTSAX for the simple reason that they are “foreign” companies. In recent years the distinction between U.S. and International companies has broken down because of “reverse acquisitions” and other complicated financial transactions. An example is the Pittsburgh “based” company Mylan N.V. It’s actually a Dutch company created through a reverse acquisition in which the U.S. company, Mylan Labs, “acquired” a much smaller Dutch company. The transaction was structured so that the Dutch company would be the acquirer and would change its name to Mylan N.V. The new company is chartered in the Netherlands but its principal place of business, and executive offices, are still in Pittsburgh.

The idea in determining which companies are U.S. or International is appearance rather than strict legal definition of their domicile.

DaufuskieNate
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Re: Vanguard Total International Stock Index Fund

Post by DaufuskieNate » Mon Jan 21, 2019 2:45 pm

dkturner wrote:
Mon Jan 21, 2019 1:27 pm
The idea in determining which companies are U.S. or International is appearance rather than strict legal definition of their domicile.
Very true. Here again, CRSP has a well-defined process for making these decisions. For anyone who is interested, here is the process:

"Identifying US Companies
To determine whether a company is considered a US company, and therefore eligible for indexes, securities are screened based upon the following criteria:
1. The company’s headquarters and incorporation are in the United States: Companies both incorporated in and with
headquarters in the United States are eligible. Others move to criteria 2.
2. The company is headquartered in the U.S., a U.S. Territory (UST), Domicile of Convenience (DOC), or Tax Haven (TH):
Companies headquartered in the U.S., a U.S. Territory, Domicile of Convenience or Tax Haven move on to Criteria 3.
See Appendix F for list of UST, DOC and TH locations. Others are considered foreign and are not eligible.
3. The company has an Employer Identification Number: Companies that have an Employer Identification Number (EIN)
move on to criteria 4. Companies that do not have an EIN and thus do not withhold taxes on US wages or file US tax
returns are foreign and are not eligible.
4. Securities are owned by more than 5 percent of US domestic equity funds: If more than 5 percent of domestic
equity funds own a security, as determined by holdings data, US manager sentiment indicates that the security is
viewed as US eligible (giving an inclusion bias in criteria 4). Irrespective of manager sentiment, CRSP will collect
any information deemed necessary, and may include additional information on US fund sentiment, asset/operation
location, tax/regulatory jurisdiction, history, revenue origin, corporate structure/ownership, primary exchange, etc. All
securities from criteria 4 are appraised by CRSP’s Index Eligibility Committee in criteria 5.
5. Committee: The above rules were developed to capture the characteristics of the vast majority of securities. However, when exceptions occur, the Committee will make the final determination of whether or not a security is domestic and included in the CRSP Indexes. For these exceptions, which will include new securities or those that experienced a fundamental change in their characteristics, the Committee will verify by other sources whether a firm actually has notable US assets, revenue, employment and relevant operations, or has obtained an EIN only for nominal visibility purposes.
If a company’s location is unclear after a corporate event, the Committee may elect to give higher weight to continuing its
status and reviewing again at the next ranking. In practice, the Committee may also approve some additional jurisdictions
deemed valid for business purposes for a particular company. These criteria will be reapplied prior to each ranking. Any security that has been included in or removed from the CRSP Indexes based on the Committee’s decision will retain that status for one year, unless there is a fundamental change in the security’s characteristics. After one year, the security’s eligibility status will be reevaluated by the Committee."

Topic Author
Shem002
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Re: Vanguard Total International Stock Index Fund

Post by Shem002 » Mon Jan 21, 2019 3:00 pm

Ben Mathew wrote:
Mon Jan 21, 2019 1:07 pm
Shem002 wrote:
Mon Jan 21, 2019 12:50 pm
If VTSAX is an index that mimics the entire US stock market (NYSE & NASDAQ) it seems like that it would include the international companies that trade on those exchanges
To understand your question better, can you provide an example of an international company that's trading on U.S. exchanges? Are you perhaps thinking of ADRs? These which would not be included in VTSAX.
Ok I understand now. I was unfamiliar with the term ADR’s. I am still learning and always thought the NYSE and NASDAQ housed the US market exclusively but they are actually global markets

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