After leading all ETF issuers in cash inflows in 2010, Vanguard is wasting no time building out its lineup in 2011. The Pennsylvania-based firm recently launched the Total International Stock ETF (VXUS), a fund designed to offer global exposure to companies located outside the U.S. The new ETF is linked to the MSCI All Country World ex-USA Investable Market Index, a benchmark that offers exposure to hundreds of individual securities in dozens of countries, both developed and emerging. The new ETF is a separate share class of the Vanguard Total International Stock Index Fund, which has been around since 1996. With more than $50 billion in assets, that fund is Vanguard’s second largest.
Vanguard holds a patent on a unique share class structure that allows the company to offer ETFs as separate share classes of mutual funds. That structure is in part responsible for the company’s reputation for low costs, as the larger underlying pool of assets allows for competitive pricing and often more robust replication and tracking as well. “Vanguard Total International Stock ETF (VXUS) is a new way to invest in an established fund that offers broad international diversification with an extremely modest price tag,” said Vanguard’s Chief Investment Officer Gus Sauter. “It complements our Total Stock Market ETF and Total Bond Market ETF and enables advisors and individual investors to assemble a simple, balanced, and well-diversified portfolio using low-cost ETFs.”
VXUS will charge an expense ratio of 0.20%, making the cheapest option in the Global Equities ETFdb Category (the average for the category comes in at 0.52%). The new Vanguard ETF will compete most closely with the iShares MSCI All Country World ex-U.S. Index Fund (ACWX), which charges 35 basis points and has about $800 million in assets. Vanguard also offers an ex-U.S. global equity ETF linked to an FTSE benchmark; the Vanguard FTSE All-World Ex-U.S. ETF (VEU) charges 0.25% and finished 2010 with more than $6.5 billion in assets.
Vanguard led all issuers with cash inflows of more than $40 billion in 2010, almost half of which went into the Vanguard Emerging Markets ETF (VWO). That fund recently surpassed EEM to become the largest ETF in the Emerging Markets ETFdb Category, highlighting a move among investors toward the most cost efficient products. EEM and VWO both seek to replicate the MSCI Emerging Markets Index, but the Vanguard fund charges just 0.27% - 42 basis points less than EEM.
Many issuers have lowered expense ratios in an attempt to increase interest in their products. iShares COMEX Gold Trust (IAU) has steadily gained ground on the ultra-popular Gold SPDR (GLD) since lowering fees from 0.40% to 0.25%, and just this week Van Eck cut fees on two of its international ETFs that compete closely with iShares funds.
Disclosure: No positions at time of writing.
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