VEA vs VXUS: Does a Vanguard Developed Markets or Emerging Markets ETF Provide Better Growth Prospects?ure?

The choice between Vanguard Total International Stock ETF (NASDAQ:VXUS) and Vanguard FTSE Developed Markets ETF (NYSEMKT:VEA) hinges on whether an investor wants exposure to emerging markets or prefers a low-cost, developed-world focus.

Both funds offer efficient routes to global diversification beyond U.S. borders. While they share several top holdings and the same issuer, their underlying indices differ in geographic scope, which ultimately affects their risk profiles and recent total return performance.

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-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield as of the close of the trading day on Aug. 13.

The Developed Markets ETF is the more affordable option, carrying a slim 0.03% expense ratio compared to the 0.05% for the Total International Stock ETF. Both funds currently offer an identical 2.5% dividend yield.

Performance & risk comparison

What's inside

Vanguard FTSE Developed Markets ETF tracks the FTSE Developed All Cap ex U.S. Index, focusing on approximately 3,875 stocks across 25 developed nations like Japan, Canada, and the United Kingdom. Its sector composition is heavily weighted toward financial services (23%), industrials (18%), and technology (15%). Its largest positions include Samsung Electronics at 2.5%, ASML Holding (NASDAQ:ASML) at 2%, and SK Hynix (NASDAQ:SKHY) at 1.9%. Launched in 2007, the Vanguard FTSE Developed Markets ETF has paid $1.81 per share over the trailing 12 months, which on its recent ~$73.5 share price works out to a 2.5% yield.

Vanguard Total International Stock ETF provides significantly broader coverage by tracking the FTSE Global All Cap ex U.S. Index, which includes both developed and emerging markets such as China and India. The fund manages 8,721 holdings, with its primary sector tilts toward technology (23%), financial services (22%), and industrials (15%). Its largest positions include Taiwan Semiconductor Manufacturing at 4.3%, Samsung Electronics Co at 2.3%, and SK Hynix at 2.2%. Launched in 2011, the Vanguard Total International Stock ETF has paid $2.19 per share over the trailing 12 months, which on its recent ~$87.7 share price works out to a 2.5% yield.

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Which looks like the better buy?

These are both good funds from a respected fund operator with rock-bottom expenses. They share some similarities: both have similar drawdowns, both are 79% invested in large caps (mostly a blend of value and growth stocks), 17% in mid caps, and less than 10% in small caps. The top ten holdings for each fund are just about 13% of holdings, and they share six of the same names among their top 10.

But there are differences to consider. One key one: VXUS invests in emerging markets while VEA basically does not (less than 1% of its holdings are considered in the emerging markets).

The Vanguard Total International Stock ETF -- VXUS -- is 82% in developed-world stocks. Its top country-level holdings are Japan (15%), Taiwan (8%), and the United Kingdom (also 8%). The fund's balance is almost entirely in emerging market stocks.

VEAS, by comparison, is 98% dedciated to developed, non-U.S. markets (with a smidgen of U.S. and emerging markets-classified holdings to round it out). Its top countries are Japan at 21% of holdings, followed by the U.K. and Canada, both about 11% of the portfolio.

Unless you have strong feelings about including emerging markets in your selection, the key differentiator, then, is performance. Here VEA edges out its sibling in every time frame. VEA has returned an annualized 17.8%, 9.9%, and 10% over the 3-year, 5-year, and 10-year look-backs. VXUS is also good, but slightly lagging, at 16.9%, 8.9%, and 9.4% over the 3-, 5-, and 10-year time frames. Year-to-date, the story is much the same; VEA is up 14.2% to 12.9%.

Neither of these funds is a bad choice. But since you're investing to make money, go with the fund that has shown consistently better performance over the long haul. That's the Vanguard FTSE Developed Markets ETF -- VEA.

Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard FTSE Developed Markets ETF. The Motley Fool has a disclosure policy.