Better International ETF: Vanguard VEA vs. iShares URTH

The iShares MSCI World ETF (NYSEMKT:URTH) provides broad exposure to developed nations including the U.S., while the Vanguard FTSE Developed Markets ETF (NYSEMKT:VEA) excludes U.S. equities to focus exclusively on international mature markets.

Investors looking for developed market exposure must decide whether to include or exclude the world's largest economy. While the iShares fund offers a one-stop global portfolio, the Vanguard fund is often used to complement existing domestic holdings with international diversification.

Snapshot (cost & size)

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-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The Vanguard ETF offers a much more affordable choice with a 0.03% expense ratio compared to 0.24% for the iShares fund. Income-focused investors may also prefer the Vanguard fund, which carries a yield gap of one percentage point.

Performance & risk comparison

What's inside

The iShares MSCI World ETF aims to mirror the investment performance of developed global economies, including the U.S. Its portfolio is concentrated in technology at 31%, financial services at 16%, and industrials at 11%. With 1,251 holdings, its largest positions include Nvidia at 5.66%, Apple at 5.41%, and Microsoft at 3.85%. It was launched in 2012, and has paid $2.84 per share over the trailing 12 months, which on its recent ~$207.18 share price works out to a 1.4% yield.

The Vanguard FTSE Developed Markets ETF tracks an index of approximately 3,873 stocks across Canada, Europe, and the Pacific region. Its sector allocation leads with financial services at 24%, followed by industrials at 18% and technology at 16%. Its largest positions include Samsung Electronics at 2.61%, SK Hynix at 2.01%, and ASML Holding at 1.96%. It was launched in 2007, and 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.

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Which looks like the better buy

Adding international stocks to an investment portfolio helps to deliver greater diversification, and reduces reliance on the domestic economy to power returns. ETFs are a great way to capture a basket of high-quality international companies, which makes the iShares MSCI World ETF (URTH) and the Vanguard FTSE Developed Markets ETF (VEA) compelling investment choices.

Both offer exposure to developed countries, which are not as risky as emerging markets. So which is the better fund? That depends on a few key factors to consider.

URTH includes U.S. equities, so if you have a U.S.-centric portfolio and already own many of the stocks it holds, you may want to opt for VEA. American companies comprise about 73% of URTH as of Oct. 1.

VEA is a purely international fund with about half its holdings in European companies. That said, its top holdings, Samsung and SK Hynix, are South Korean businesses that provide computer memory, and as a result, have become key artificial intelligence companies.

The ETF also boasts a higher dividend yield, far lower expense ratio, and a greater AUM for superior liquidity. Given these factors, unless you want a fund that includes U.S. stocks, I would choose VEA.

Robert Izquierdo has positions in ASML, Apple, Microsoft, and Nvidia. 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.