These 5 International ETFs Add Stocks From Outside the U.S.
Key Points
VEA and IEFA cover developed markets such as Europe, Japan, and Australia.
VWO and EEM cover emerging markets such as China, India, Taiwan, and Brazil.
VXUS holds both in one fund.
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The Vanguard FTSE Developed Markets ETF (NYSEMKT: VEA), Vanguard FTSE Emerging Markets ETF (NYSEMKT: VWO), iShares Core MSCI EAFE ETF (NYSEMKT: IEFA), iShares MSCI Emerging Markets ETF (NYSEMKT: EEM), and Vanguard Total International Stock ETF (NASDAQ: VXUS) all enable investors to add some international exposure to their portfolio. However, that doesn't mean these funds are interchangeable. There are some important differences that you should know before adding one of these ETFs to your portfolio.
Here's a look at how to decide which of these top international ETFs is best for your portfolio.
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Similar ways to invest in developed global markets
The Vanguard FTSE Developed Markets ETF and iShares Core MSCI EAFE ETF both invest in developed global markets. These countries have highly industrialized economies, high household and per capita incomes, mature capital markets, and strong regulatory and legal systems.
While these ETFs both focus on developed markets, they have a slightly different investment approach. VEA holds companies from all developed economies except the U.S., while IEFA also excludes Canada. Here's a snapshot of these two international stock ETFs.
|
ETF |
AUM |
Holdings |
Expense ratio |
10-year return |
Top three countries |
Top three holdings |
|---|---|---|---|---|---|---|
|
VEA |
$229 billion |
3,903 |
0.03% |
9.8% |
Japan (21.9%), U.K. (11.1%), and Canada (10.8%) |
Samsung (2.8%), SK Hynix (2.3%), and ASML (2.1%) |
|
IEFA |
$187 billion |
2,624 |
0.07% |
9.1% |
Japan (24.3%), U.K. (14.6%), and Switzerland (9.2%) |
ASML (2.3%), Roche (1.4%), HSBC (1.2%) |
Data source: Vanguard and iShares.
Overall, these funds are fairly similar. The main differences are that VEA holds more stocks, including Canadian stocks, and has a lower expense ratio. So you get roughly the same international exposure at a better price. However, either ETF offers a solid option for investors seeking to diversify their portfolio with some international stock exposure.
Two ways to invest in emerging markets
The Vanguard FTSE Emerging Markets ETF and the iShares MSCI Emerging Markets ETF are both emerging markets ETFs. Emerging markets are those transitioning to developed status. These economies are rapidly industrializing, experiencing higher GDP growth rates, and increasingly integrating into the global financial system.
While both ETFs focus on emerging markets, they're quite different:
|
ETF |
AUM |
Holdings |
Expense ratio |
10-year return |
Top three countries |
Top three holdings |
|---|---|---|---|---|---|---|
|
VWO |
$118 billion |
6,507 |
0.06% |
6.9% |
Taiwan (35.1%), China (26%), and India (16%) |
Taiwan Semiconductor (15.7%), Tencent (2.8%), Alibaba (2.1%) |
|
EEM |
$28 billion |
1,182 |
0.72% |
8.4% |
Taiwan (26.4%), China (22%), and South Korea (17.3%) |
Taiwan Semiconductor (14.8%), Samsung (6%), SK Hynix (4.3%) |
Data source: Vanguard and iShares.
There are several differences between these funds. EEM holds companies from South Korea, while VWO does not. Despite that, VWO has more holdings overall. It also has a significantly lower expense ratio. Meanwhile, technology companies comprise over 37% of EEM's assets. That's something investors should keep in mind if they already have high exposure to the U.S. tech sector. This ETF wouldn't be providing as much diversification benefit as you might expect.
VWO is best for investors seeking low-cost exposure to emerging markets. EEM is best for investors seeking more concentrated exposure, especially to more tech-focused markets like Taiwan and South Korea. However, investors need to be mindful that emerging-market funds tend to be more volatile due to the higher risks of the countries they invest in.
The best of both worlds
The Vanguard Total International Stock ETF provides investors with broad exposure to markets outside the U.S., including developed and emerging economies. This ETF currently holds 8,901 stocks from around the world, including Japan (16.1%), Taiwan (9.3%), and the U.K. (8.1%). VXUS is like pairing both VEA and VWO in a single fund. The ETF provides this broad exposure for a very reasonable 0.05% expense ratio.
VXUS can be a great core international fund for investors who want a one-stop shop for international diversification. While its exposure to emerging markets adds risk, it has less overall exposure to them (26.6%) than an emerging-market ETF.
ETFs make it easy to go global
International ETFs enable investors to diversify their portfolio beyond the U.S. stock market without having to research individual companies and countries. They provide broad exposure, which helps reduce the risk of investing in global markets. However, it's important to know each fund's focus area, as emerging market ETFs carry more risk. That's why investors might want to focus on developed market ETFs like VEA or IEFA, or take an even broader approach with VXUS.
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HSBC Holdings is an advertising partner of Motley Fool Money. Matt DiLallo has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends ASML, Taiwan Semiconductor Manufacturing, Tencent, Vanguard FTSE Developed Markets ETF, and Vanguard FTSE Emerging Markets ETF. The Motley Fool recommends Alibaba Group and Roche Holding AG. The Motley Fool has a disclosure policy.
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