Vanguard FTSE All-World ex-US Small-Cap Index Fund

from Vanguard: ''The fund employs a “passive management”—or indexing—investment approach designed to track the performance of the FTSE Global Small Cap ex US Index. The index includes approximately 3,300 stocks of companies in more than 46 countries from both developed and emerging markets around the world. The fund invests in a broadly diversified sampling of stocks in the index that approximates the index’s key risk factors and characteristics.''

According to FTSE:

''The FTSE Global Small Cap Index Series provide investors with unparalled access to over 4,600 liquid small cap stocks across 48 countries. The indices capture the bottom 10% of seven regional markets in the FTSE Global Equity Index Series (which covers Large, Mid and Small Cap). The flexible structure of global, regional and country small cap indices provides asset managers with the ability to meet any mandate. The FTSE Global Small Cap Index Series are formed from the wider FTSE Global Equity Index Series. The same methodology is applied to a single global universe to ensure there is no double counting of stocks allowing you the flexibility to manage small cap discretely or as part of your broader benchmark.''

Share Classes
Three share classes are available:

Total costs of the ETF and open-end classes may be compared via this Vanguard calculator, although the differential in Vanguard's charges will likely steer most investors toward the ETF share.
 * Investor (VFSVX), an initial minimum investment of $3,000, along with a purchase and redemption fees on all shares
 * ETF (VSS) with no minimums, though transaction costs apply in buying and selling through a brokerage
 * Institutional (VFSNX) with an initial minum of $5,000,000

Broad coverage
The fund contains both developed and emerging market stocks, which is the first of its kind. In addition, the broad index should make the fund relatively tax efficient and thus suitable for taxable accounts.

Expense Ratio
The current expense ratio of the fund is high by Vanguard standards. Vanguard International Explorer Fund gives you access to a similar asset class although the fund is much less diversified, i.e. contains much fewer stocks, and is subject to style drift into mid cap stocks. In addition, International Explorer Fund's turnover rate may make it unsuitable for a taxable holding.

Fees
The purchase and redemption fees are non-expiring, and thus discourage trading by imposing a cost on every trade. Given the volatility of small cap stocks, there are many opportunities for tax loss harvesting, but the redemption cost significantly reduces the benefit.

The purchase and  redemption fees can be avoided by using the ETF class; there are still brokerage fees and trading costs, but the fees can be less than purchase and redemption fees.

Vanguard has a history of reducing, and eventually eliminating, the transaction fee as fund net assets increase.

Total Market Replication
Investors wishing to replicate the Total International Market, should hold this fund in a 1:9 ratio with Vanguard FTSE All-World ex-US Index Fund.

History
On December 11, 2008, Vanguard announced that it has filed a registration statement with SEC with the availability expected to be in the first quarter of 2009.