TLH: Would you treat these 4 international funds as virtually interchangeable

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AntsOnTheMarch
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TLH: Would you treat these 4 international funds as virtually interchangeable

Post by AntsOnTheMarch » Thu Dec 14, 2017 11:35 am

VTIAX (etf: VXUS) Vanguard Total International Stock Index Fund Admiral Shares
IXUS iShares Core MSCI Total International Stock ETF
VFWAX (etf: VEU) Vanguard FTSE All-World ex-US Index Fund Admiral
VTMGX (etf: VEA) Vanguard Developed Markets Index Fund Admiral Shares

Edited to correct typo in title.
Last edited by AntsOnTheMarch on Thu Dec 14, 2017 2:47 pm, edited 2 times in total.

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nisiprius
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Re: TLH:ould you treat these 4 international funds as virtually interchangeable

Post by nisiprius » Thu Dec 14, 2017 11:56 am

I think that for tax-loss harvesting, the appropriate question is, "if A is my preferred choice, and B, C, and D are my substitutes... during the length of time I plan to hold B, C, or D, how much difference is there likely to be between holding them and holding A?" Notice, by the way, that it's quite possible that your substitute could outperform your preferred choice; in fact, if they are pretty similar, the chances are about 50/50.

I'm going to do a quick reality check and I will use "the last full calendar year," i.e. 2016, as the "holding time." Before I look, I will hazard a guess. Since the first three are all indexes that include developed and emerging markets, while the third is developed only, I would expect to see more difference between VTMGX and the other three than within the first three. On the other hand, since developed markets are, after all, about 81 to 87% of the total market (depending on whose definition you use!) I would expect the difference to be small. OK, here goes.
Source
Image

The three funds that include both developed and emerging markets are in blue, orange, and green, and the one that includes developed markets only is in red.

My personal conclusion is that during 2016, VTIAX, IXUS, and VFWAX looked almost like clones, and VTMGX didn't. Once again, there's no reason to assume that VTMGX will always underperform, but if your goal is to stay close to VTIAX, then--as you'd expect simply from their index descriptions--IXUS and VFWAX are closer to that goal.

Everything I've ever read about tax-loss harvesting and wash sales says that nobody really knows what the IRS will treat as a wash sale--that is, the IRS has never defined "substantially identical"--and I've never read of the IRS objecting to tax-loss harvesting between similar mutual funds or ETFs. I imagine they would give some warning if they decided to. That said, personally, since VTIAX and IXUS include some small-caps, and VFWAX includes no small-caps, it might be worth noting that with VTIAX/IXUS or VTIAX/VFWAX it would be easy to point to a very specific difference between them, not only in the actual holdings but in the stated definition of the intentions of the indexes they track.
Last edited by nisiprius on Thu Dec 14, 2017 12:05 pm, edited 2 times in total.
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livesoft
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Re: TLH:ould you treat these 4 international funds as virtually interchangeable

Post by livesoft » Thu Dec 14, 2017 12:04 pm

The actual mechanics will have some influence on what one might do. For instance, if one has VTIAX, then exchanging to VFWAX is the easiest thing to do. If one has IXUS, then exchanging into another ETF is probably easier such as VEU.

And getting VEA/VTMGX in taxable, while putting VSS in tax-advantaged is another possibility. I don't own VWO, so I haven't researched where it might fit best.

I think VTIAX to VFWAX was probably the most popular subject in 2015 for tax-loss harvesting.
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AntsOnTheMarch
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Re: TLH: Would you treat these 4 international funds as virtually interchangeable

Post by AntsOnTheMarch » Thu Dec 14, 2017 3:08 pm

Two excellent responses!

nisiprius, that is a quite an analysis! Thank you for taking the time to write it.
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Earl Lemongrab
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Re: TLH: Would you treat these 4 international funds as virtually interchangeable

Post by Earl Lemongrab » Thu Dec 14, 2017 5:02 pm

Well, I don't know what "virtually interchangeable" means or what it has to do with TLH. I would not consider those to be substantially identical, which does have something to do with it.
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Re: TLH: Would you treat these 4 international funds as virtually interchangeable

Post by jalbert » Thu Dec 14, 2017 5:37 pm

AntsOnTheMarch wrote:
Thu Dec 14, 2017 11:35 am
VTIAX (etf: VXUS) Vanguard Total International Stock Index Fund Admiral Shares
IXUS iShares Core MSCI Total International Stock ETF
VFWAX (etf: VEU) Vanguard FTSE All-World ex-US Index Fund Admiral
VTMGX (etf: VEA) Vanguard Developed Markets Index Fund Admiral Shares
Switching between any two of these is fine in terms of not triggering a wash sale.

VTIAX/VXUS and IXUS are the most similar. They track different total int'l indices but both are total market indices. IXUS includes China red chips, e.g. Alibaba, VTIAX does not.

VFWAX/VEU excludes small caps.

VTMGX/VEA excludes emerging markets, but includes S. Korea and Canada, which many developed market index funds exclude.

VSS can be paired with VEU, and VEMAX can be paired with VTMGX if you want to maintain a total int'l total market portfolio. VEMAX includes China A-shares that IXUS and VTIAX lack.

In a taxable account, IXUS is more tax efficient than VTIAX, but not by much. 80% VTMGX + 20% VEMAX has a lower ER than VTIAX or IXUS, but not by much.
Last edited by jalbert on Fri Dec 15, 2017 2:03 pm, edited 4 times in total.
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AntsOnTheMarch
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Re: TLH: Would you treat these 4 international funds as virtually interchangeable

Post by AntsOnTheMarch » Thu Dec 14, 2017 6:02 pm

jalbert wrote:
Thu Dec 14, 2017 5:37 pm
AntsOnTheMarch wrote:
Thu Dec 14, 2017 11:35 am
VTIAX (etf: VXUS) Vanguard Total International Stock Index Fund Admiral Shares
IXUS iShares Core MSCI Total International Stock ETF
VFWAX (etf: VEU) Vanguard FTSE All-World ex-US Index Fund Admiral
VTMGX (etf: VEA) Vanguard Developed Markets Index Fund Admiral Shares
Switching between any two of these is fine in terms of not triggering a wash sale.

VTIAX/VXUS and IXUS are the most similar. They track different total int'l indices but both are total market indices. IXUS includes China red chips, e.g. Alibaba, VTIAX does not.

VFWAX/VEU excludes small caps.

VTMGX/VEA excludes emerging markets, but includes S. Korea and Canada, which many developed market index funds exclude.

VSS can be paired with VEU and VEMAX can be paired with VTMGX if you want to naintain a total int'l total market portfolio. VEMAX includes China A-sharea that IXUS and VTIAX lack.

In a taxable account, IXUS is more tax efficicent than VTIAX, but not by much. 80% VTMGX + 20% VEMAX has a lower ER than VTIAX or IXUS.but not by much.
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