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Vanguard Total World Stock ETF (NYSEMKT:VT) provides an all-in-one equity solution covering global markets, while Vanguard FTSE Developed Markets ETF (NYSEMKT:VEA) offers low-cost exposure specifically to established economies outside the U.S.
Diversifying across international borders can help investors mitigate the risks of a U.S.-centric portfolio. This comparison examines two massive Vanguard funds: one that provides comprehensive exposure to the global stock market and another that focuses exclusively on established economies outside the United States. Each offers a different level of domestic and emerging market risk.
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
Vanguard FTSE Developed Markets ETF is the more affordable option with a 0.03% expense ratio. It also offers a higher payout, with a yield gap of 0.87 percentage points over the total world fund.
Vanguard Total World Stock ETF seeks to track a broad global index, holding more than 10,000 stocks from both developed and emerging markets. Because it includes U.S. companies, its sector allocation is heavily weighted toward technology at 30%, with financial services at 16% and industrials at 11% also playing significant roles. Its largest positions include Nvidia at 4.3%, Apple at 3.8%, and Microsoft at 3.1%. This broad approach results in significant concentration in American tech giants. Vanguard Total World Stock ETF has paid $2.41 per share over the trailing 12 months, which on its recent ~$158.81 share price works out to a 1.5% yield. It was launched in 2008.
Vanguard FTSE Developed Markets ETF takes a narrower path by holding 3,895 stocks in non-U.S. developed markets. This focus results in a portfolio that is less tech-heavy, with financial services at 24%, industrials at 18%, and technology at 16%. Top holdings include Samsung Electronics at 2.6%, SK Hynix at 2.%, and ASML Holding at 1.95%. By excluding the U.S. and emerging markets, it provides more direct exposure to established international business cycles. Vanguard FTSE Developed Markets ETF has paid $1.70 per share over the trailing 12 months, which on its recent ~$71.31 share price works out to a 2.4% yield. It was launched in 2007.
For more guidance on ETF investing, check out the full guide at this link.
VT and VEA are both good choices for a diversified portfolio. Your choice between the two will likely come down to what you already hold and what you're hoping to achieve with new investment dollars. VT encompasses both foreign and domestic stocks from both well-established and developing markets. As you can likely tell from its top holdings, its inclusion of U.S. stocks weights it heavily toward American tech companies. These companies have been solid foundational investments, but if you already have exposure to them, either individually or via other funds, like one that tracks the S&P 500 index, you should be cognizant of how adding VT could overconcentrate you in these names. That said, VT is often considered a low-cost, low-effort way to diversify your holdings, with over 10,000 stocks and broad geographic exposure.
If you are concerned about being concentrated in U.S. tech names, VEA may be more appealing to you. It excludes U.S. companies, as well as those from developing markets, focusing on large-, mid-, and small-cap companies located in Canada and the major markets of Europe and the Pacific region. It's also performed better this year than VT and offers a higher dividend payout, though its five-year maximum drawdown is also slightly higher than VT's.
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Sarah Sidlow has positions in Apple, Microsoft, Nvidia, and Vanguard International Equity Index Funds - Vanguard Total World Stock ETF. The Motley Fool has positions in and recommends ASML, Apple, Microsoft, Nvidia, and Vanguard FTSE Developed Markets ETF. The Motley Fool has a disclosure policy.
Vanguard Total World Stock ETF vs. FTSE Developed Markets ETF: What's Better for Diversification? was originally published by The Motley Fool
