By Jim Wiandt
It seems like such nitpicking, but I guarantee you a bunch of Diehards will read Dan Serra's piece on the Vanguard Total International fund with interest.
First of all, I've been tooling around our database and Dan's Serra's feature for a good portion of the morning to survey the lay of the land (which you can do pretty quickly on www.indexuniverse.com/data) though I also went into the Vanguard, iShares and SSgA and a couple other Web sites.
My conclusion is that Vanguard having the MSCI ACWI fund (ex-U.S., and hey why not with the U.S. too?) seems like an obvious thing to do. It's something that clearly matches their all-MSCI lineup and would dole out a familiar index to the Vanguard investor. Plus, you've got to assume that there's no licensing exclusivity that would preclude them from doing it, because they're Club MSCI already, and both iShares and SPDRs have ACWI funds.
The only problem is they've already doled out the prime-time tickers (and -this has always bugged me just a bit - done it backwards, by giving VTI to the total US Market fund and VT to the total global [FTSE] fund. But I've got a solution.
Before we tackle the tickers, do they need these funds? You may say that FTSE index is great. And I'd agree, I really like it and think it's a tighter and more diversified international index. But there's something still about the comfort, safety and familiarity and asset drawing power of the MSCI EM, MSCI EAFE and MSCI ACWI indexes. Still, the FTSE ex U.S. fund (NYSEARCA:VEU) has drawn a very respectable $2 billion ($2.8 billion total) in assets with the total global FTSE (NYSEARCA:VT) bringing in another $34 million ($56 million total). And it's evident Vanguard LIKES the MSCI family, because everything else, for the most part has been shifted to it already.
So I propose VMT (Vanguard MSCI Total) and VMTI (Vanguard MSCI Total International). I know we'd have to go NASDAQ - a step Vanguard has not taken to date - for the second one and NYSE (or AMEX if you do it quick) for the first, but we're all for exchange competition. If you want to go NASDAQ with both, then VMTI and VMTX have a nice ring to them.
In terms of ramping up scale and lowering cost for Vanguard investors, the proof is in the pudding. Two of Vanguard's most successful ETFs have gone straight at their massive iShares counterparts, with some good success. VWO, the Vanguard MSCI Emerging Markets fund has rolled in $7.1 billion in ETF assets (of the now $24.3 billion in the fund overall) to iShares equivalent EEM's $20 billion overall. Chalk it up to the 25 bps to 74 bps price differential and perhaps to the tracking problems the iShare has had w/ the ETF structure. In the more recently launched (summer of 2007) Vanguard EAFE fund (NYSEARCA:VEA), the Vanguard fund has managed $1.7 (of $4 billion in the new fund - similar to what Vanguard is doing right now with VGTSX - combo fund) to iShares massive $39 billion in assets. What a difference two years of launch time makes. BPs have a similar gap of 12 to 34, but EFA hasn't had any tracking issues.
So with that track record and that level of assets, you think they might make a go of it. But...ahem, actually the iShares ACWI (NASDAQ:ACWI) and ex-US ACWI (NASDAQ:ACWX) - there are your NASDAQ tickers - funds only have $150 million and $55 million respectively. The SPDRs ACWI ex-US (NYSEARCA:CWI) actually has $316 million. First mover. So maybe the Vanguard folks are thinking it's TOO much tinkering on that basis, but I wouldn't think so w/ Team Total Market.
So, I don't know what to make of the Vanguard denials that an ETF (or 2) is coming. Clearly having the underlying in there is a way to prepare for an ETF, but there are also be other advantages to not having that extra layer there and having direct ownership of the underlying in the fund. But as a long-time VGTSX holder, I would love to have the correspondent ETF. And I'm sure there are many Diehards with me. If the price equivalents hold up, for people in the investor share class, it would probably mean a drop from 27 bps down to why not? - a nice round 15 bps. VFWSX (the FTSE All World goes from 45 for investor shares to (a relatively expensive for a Vanguard ETF) 25 bps for VT. The FTSE All-World ex-US [VFWIX] goes from 40 to the same 25 bps. The SSgA ACWIs are priced at 35 bps, and so are the iShares.
So given all of that and other pricing, the 15 bps for our new VMT and VMTI Vanguard MSCI Total world and total International funds seems about right. Let us know the launch date on those, Team Vanguard.