Is VXUS better than VEA/VWO?

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simplesauce
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Is VXUS better than VEA/VWO?

Post by simplesauce » Mon Jun 26, 2017 8:39 am

I'm playing with the idea of simplifying down to one fund instead of two, for my international holdings. However, I noticed that VXUS (Total International Stock ETF) includes only 6,166 stocks, as compared to holding both VEA and VWO (Developed/Emerging Markets ETFs) which would give you a combined 8,394 stocks.

It seems like combining both ETFs would be the more diversified route. You're getting another 2,000+ stocks, and also have the possibility to rebalance when one or the other drops.

Thoughts?

retiredjg
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Re: Is VXUS better than VEA/VWO?

Post by retiredjg » Mon Jun 26, 2017 1:10 pm

I would hold just the one - Total International VXUS. It's easier and simpler.

In this case, I don't think more stocks means more diversification because it is done by sampling and I assume their numbers are high enough that the sampling is adequate.

I don't think it hurts to hold two if that suits you.

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triceratop
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Re: Is VXUS better than VEA/VWO?

Post by triceratop » Mon Jun 26, 2017 1:17 pm

There have been recent threads on this topic: viewtopic.php?f=10&t=221949&p=3422859#p3422841

VXUS != VEA + VWO

I would use only 1 fund. The rebalancing is automatic and free. You don't see a lot of people reconstructing a total market fund by using 9 funds of Small/Mid/Large Value/Blend/Growth either.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Is VXUS better than VEA/VWO?

Post by retiredjg » Mon Jun 26, 2017 1:48 pm

BTW, I don't think there is a "better" unless costs are different. It's just what suits you and what you have available.

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Re: Is VXUS better than VEA/VWO?

Post by grep » Wed Nov 07, 2018 4:19 pm

retiredjg wrote:
Mon Jun 26, 2017 1:48 pm
BTW, I don't think there is a "better" unless costs are different. It's just what suits you and what you have available.
Found this thread by search, while wondering the same thing. To the point "unless costs are different"--looks like the costs are different, and that the VEA/VWO mix would be almost 3 bps cheaper. Does that sound right?

VXUS 0.11%

VEA 0.07%
VWO 0.14%

Mix 80% VEA + 20% VWO = 0.084%

retiredjg
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Re: Is VXUS better than VEA/VWO?

Post by retiredjg » Wed Nov 07, 2018 4:35 pm

Looks right to me. However, I don't consider a $26 savings on a $100k investment to be worth much if it is not what you actually want to do.

Use the one fund if you like. Use the 2 funds together if you like. The cost is essentially the same.

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Re: Is VXUS better than VEA/VWO?

Post by Dale_G » Thu Nov 08, 2018 12:01 am

triceratop wrote:
Mon Jun 26, 2017 1:17 pm
snip .... VXUS != VEA + VWO

I would use only 1 fund. The rebalancing is automatic and free. You don't see a lot of people reconstructing a total market fund by using 9 funds of Small/Mid/Large Value/Blend/Growth either.
The Total International fund does not rebalance to keep developed and emerging components at a constant percentage. The fund is presently about 80% developed and 20% emerging. If the value of the EM stocks decreases by 50% while the developed stocks hold constant, the fund would end up being about 89% developed and 11% emerging.

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triceratop
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Re: Is VXUS better than VEA/VWO?

Post by triceratop » Thu Nov 08, 2018 1:02 am

Dale_G wrote:
Thu Nov 08, 2018 12:01 am
triceratop wrote:
Mon Jun 26, 2017 1:17 pm
snip .... VXUS != VEA + VWO

I would use only 1 fund. The rebalancing is automatic and free. You don't see a lot of people reconstructing a total market fund by using 9 funds of Small/Mid/Large Value/Blend/Growth either.
The Total International fund does not rebalance to keep developed and emerging components at a constant percentage. The fund is presently about 80% developed and 20% emerging. If the value of the EM stocks decreases by 50% while the developed stocks hold constant, the fund would end up being about 89% developed and 11% emerging.

Dale
Yes, it's a beautiful feature and you're describing exactly what I like about it and the point I was trying to make.
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Re: Is VXUS better than VEA/VWO?

Post by Northern Flicker » Thu Nov 08, 2018 1:48 am

Dale_G wrote:
Thu Nov 08, 2018 12:01 am
triceratop wrote:
Mon Jun 26, 2017 1:17 pm
snip .... VXUS != VEA + VWO

I would use only 1 fund. The rebalancing is automatic and free. You don't see a lot of people reconstructing a total market fund by using 9 funds of Small/Mid/Large Value/Blend/Growth either.
The Total International fund does not rebalance to keep developed and emerging components at a constant percentage. The fund is presently about 80% developed and 20% emerging. If the value of the EM stocks decreases by 50% while the developed stocks hold constant, the fund would end up being about 89% developed and 11% emerging.

Dale
If you hold vea and vwo at market cap weight as your allocation target you won’t need to rebalance that either. It is holding the portfolio at market cal weight that avoids rebalancing, not whether packaged as one or two funds.

Because these indices are float adjusted, rebalancing is required when the floats change.

The most important difference is that VWO includes China-A shares but VXUS does not. That is the most important consideration about which to hold, either way. VXUS may one day include A-shares, but it will take substantial relaxation of capital flow controls for Chinese shares for large funds like VXUS to incorporate them. The indexing companies will only include them in indices for which there is enough float to support a liquid index based on the level of assets tracking the index.
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Re: Is VXUS better than VEA/VWO?

Post by watchnerd » Mon Jan 13, 2020 11:23 pm

Northern Flicker wrote:
Thu Nov 08, 2018 1:48 am

If you hold vea and vwo at market cap weight as your allocation target you won’t need to rebalance that either. It is holding the portfolio at market cal weight that avoids rebalancing, not whether packaged as one or two funds.

Because these indices are float adjusted, rebalancing is required when the floats change.

The most important difference is that VWO includes China-A shares but VXUS does not. That is the most important consideration about which to hold, either way. VXUS may one day include A-shares, but it will take substantial relaxation of capital flow controls for Chinese shares for large funds like VXUS to incorporate them. The indexing companies will only include them in indices for which there is enough float to support a liquid index based on the level of assets tracking the index.
+1

Also, because of this, the emerging market portion of VXUS is a few percentage points shy of market cap weighting*.

Holding them separately allows the correct cap weighting to be restored.

*this is assuming you're in the "Korea is no longer an emerging market" camp, like FTSE is
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Stef
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Re: Is VXUS better than VEA/VWO?

Post by Stef » Tue Jan 14, 2020 12:30 am

Northern Flicker wrote:
Thu Nov 08, 2018 1:48 am
The most important difference is that VWO includes China-A shares but VXUS does not. That is the most important consideration about which to hold, either way. VXUS may one day include A-shares, but it will take substantial relaxation of capital flow controls for Chinese shares for large funds like VXUS to incorporate them. The indexing companies will only include them in indices for which there is enough float to support a liquid index based on the level of assets tracking the index.
How many A shares does VWO hold? What's the market cap of A shares in China?

I'm still confused about this A/B shares topic. Are A shares the ones you truely want? Are they bigger and faster growing? Or are they very similiar to B shares?

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watchnerd
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Re: Is VXUS better than VEA/VWO?

Post by watchnerd » Tue Jan 14, 2020 2:13 am

Stef wrote:
Tue Jan 14, 2020 12:30 am
[
I'm still confused about this A/B shares topic. Are A shares the ones you truely want? Are they bigger and faster growing? Or are they very similiar to B shares?
"China A-Shares vs. B-Shares
China A-shares are different from B-shares. A-shares are only quoted in RMB, while B-shares are quoted in foreign currencies, such as the U.S. dollar, and are more widely available to foreign investors. Foreign investors may have difficulty accessing A-shares because of Chinese government regulations, and Chinese investors may have difficulty accessing B shares most notably for currency-exchange reasons. Some companies opt to have their stock listed on both the A-shares and B-shares market.

Due to the limited access of Chinese investors to B-shares, the stock of the same company often trades at much higher valuations on the A-shares market than on the B-shares market. Although foreign investors may now invest in A-shares, there is a monthly 20% limit on repatriation of funds to foreign countries."

Source:

https://www.investopedia.com/terms/a/a-shares.asp

So they're more expensive, I guess....and more volatile.
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Stef
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Re: Is VXUS better than VEA/VWO?

Post by Stef » Tue Jan 14, 2020 3:13 am

I read that already, but didn't really answer my questions. If they are basically the same companies with a higher stock price, why should we include them at all? What's the benefit of VWO with those stocks?

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watchnerd
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Re: Is VXUS better than VEA/VWO?

Post by watchnerd » Tue Jan 14, 2020 6:38 am

Stef wrote:
Tue Jan 14, 2020 3:13 am
I read that already, but didn't really answer my questions. If they are basically the same companies with a higher stock price, why should we include them at all? What's the benefit of VWO with those stocks?
The A-shares have higher speculative return potential because Chinese market buyers can also purchase them (and can't purchase B-shares).
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