Vanguard International ETF Face-Off: VXUS vs. VWO

The Vanguard Total International Stock ETF (NASDAQ:VXUS) and Vanguard FTSE Emerging Markets ETF (NYSEMKT:VWO) both offer low-cost international diversification, but they differ significantly in regional focus, volatility profiles, and historical performance.

International investing provides a hedge against U.S. market concentration, but the specific region matters. While the Vanguard Total International Stock ETF acts as a broad basket for all non-U.S. markets, the Vanguard FTSE Emerging Markets ETF isolates faster-growing developing nations, creating a distinct risk and return profile for long-term investors.

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.

Investors find both funds extremely efficient, though the Vanguard Total International Stock ETF is slightly more affordable with a 0.05% expense ratio. It also offers a higher payout, with a 2.7% yield compared to 2.4% for the emerging markets fund.

Performance & risk comparison

What's inside

The Vanguard FTSE Emerging Markets ETF is designed to capture the performance of companies in developing economies. Its sector allocation is led by technology at 32%, financial services at 20%, and consumer cyclical at 10%. With 5,942 holdings, its largest positions include Taiwan Semiconductor Manufacturing Co at 14.73%, Tencent Holdings at 2.90%, and Alibaba Group at 2.19%. It was launched in 2005, and has paid $1.50 per share over the trailing 12 months, which on its recent ~$60.01 share price works out to a 2.4% yield.

The Vanguard Total International Stock ETF provides broader global diversification by including developed markets alongside emerging ones. Its primary sectors are financial services at 23%, technology at 20%, and industrials at 15%. Within its 8,602 holdings, its top positions include Taiwan Semiconductor Manufacturing Co at 3.98%, Samsung Electronics at 1.90%, and SK Hynix at 1.46%. It was launched in 2011, and has paid $2.34 per share over the trailing 12 months, which on its recent ~$85.88 share price works out to a 2.7% yield.

For more guidance on ETF investing, check out the full guide at this link.

Which looks like the better buy

For U.S.-centric investors, diversifying into international stocks is a good idea, and Vanguard offers two ETFs to do so: the Vanguard FTSE Emerging Markets ETF (VWO) and the Vanguard Total International Stock ETF (VXUS). Between these two, which is the better investment?

My choice is VXUS. This fund provides exposure to both developed and emerging markets, delivering a comprehensive ETF. That's not the only reason.

VWO counts China as an emerging market, and that nation makes up a substantial 26.5% of the fund. The frequent trade issues that come up between the U.S. and China, coupled with the Chinese government's outsized control over the fate of companies operating in the country, create high volatility, as demonstrated by VWO's higher max drawdown.

VXUS also holds Chinese stocks, but these comprise a more reasonable 7% of the fund. In addition, the ETF boasts a larger dividend yield, lower expense ratio, and higher returns. It is a well-diversified ETF, given its more than 8,000 equities. With so many factors going for it, VXUS is the better buy.

Robert Izquierdo has positions in Alibaba Group and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing, Tencent, and Vanguard FTSE Emerging Markets ETF. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.