Vanguard's VXUS vs. Schwab's SCHE: How These International ETFs Compare on Risk, Returns, and Diversification

International investing often involves choosing between broad global coverage and specific regional focuses.

The Vanguard Total International Stock ETF (NASDAQ:VXUS) offers broad non-U.S. diversification across all market tiers, while the Schwab Emerging Markets Equity ETF (NYSEMKT:SCHE) provides targeted, low-cost exposure specifically to developing international economies.

Here’s how the two ETFs stack up on factors like risk, returns, cost, and diversification.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

VXUS holds a narrow edge in both affordability and income, with a slightly lower expense ratio and higher dividend yield. While the differences are minor, they could be a selling point for cost- and income-focused investors.

Performance & risk comparison

What's inside

SCHE focuses on 2,213 holdings in developing nations, with a 30% allocation to technology stocks, 21% to financial services, and 10% to consumer cyclicals. Its largest positions include Taiwan Semiconductor Manufacturing, Tencent Holdings, and Alibaba Group Holding. This fund launched in 2010 and has a trailing-12-month dividend of $0.94 per share.

VXUS offers much broader diversification through 8,770 holdings, with its largest allocations in financial services (22%), technology (18%), and industrials (16%). Its top holdings include Taiwan Semiconductor Manufacturing, Samsung Electronics, and ASML Holding. This ETF has a trailing-12-month dividend of $2.29 per share.

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

What this means for investors

Investing in international stocks can help diversify your portfolio, and both ETFs offer exposure to companies outside the U.S. However, their differences in target markets can appeal to different types of investors.

SCHE’s narrower focus on emerging markets makes it a higher-risk, higher-reward investment. These stocks have plenty of growth potential compared to their more established peers, but they can also be more prone to volatility. While VXUS also covers emerging markets, it’s more diversified with exposure to developed markets, as well.

Over the last five years, SCHE has experienced more severe price fluctuations than VXUS — as evidenced by its deeper max drawdown. While it’s also underperformed VXUS in that time, that doesn’t necessarily mean that it won’t have more room for growth going forward.

Differences in the funds’ sector allocations could also affect your decision. SCHE is more focused on technology, with nearly one-third of its portfolio dedicated to tech stocks. VXUS, on the other hand, primarily targets financial services stocks, with only 18% of assets allocated to tech.

Tech can be volatile at times, but it also has a history of explosive earnings. Whether that’s a risk you’re comfortable with depends on your personal preferences.

Both SCHE and VXUS can provide expansive international exposure. Investors seeking more stability and diversification may prefer VXUS’s focus on both emerging and developed markets. If you’re aiming for higher long-term growth, though, SCHE’s exposure to emerging markets could be a better fit for your portfolio.

Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Taiwan Semiconductor Manufacturing, and Tencent. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.