VXUS ETF

I am changing my recommendation for the Vanguard Total International Stock Index Fund ETF Shares from hold to buy because it has an attractive valuation and a well-diversified portfolio. VXUS is currently priced much lower than the S&P 500, with a P/E ratio around 13 and a dividend yield that is 1.7 percentage points higher. This ETF provides wide access to both developed and emerging markets, features a diverse range of sectors, and has a low expense ratio of just 8 basis points.

The Vanguard Total International Stock Market ETF provides wide access to global markets. Unfortunately, the VXUS ETF has performed poorly in the past ten years. Evidence suggests that diversifying beyond the US may not be very beneficial.

The Vanguard Total International Stock Index Fund ETF focuses on stocks outside the US, with 40.4% of its assets in Europe, 26.3% in the Pacific, and 25.7% in Emerging Markets. In 2024, the VXUS has not performed as well as the SPY, achieving a total return of about 13%, which has led to a roughly 2% higher earnings yield for VXUS. Economic growth in Japan, the UK, and Canada is expected to pick up as we approach 2025, while growth in emerging markets is likely to remain stable at a high level.

Orthodox investment practice allocates a third or more of total assets to Ex-US Funds. Compared to U.S.-only investment, this has led to dramatic underperformance lasting over a decade. We examine the reasons why The Vanguard Total International Stock Market ETF has done so poorly by looking closely at its holdings. We also list several persistent qualitative factors that suggest broad market international ETFs will not see their performance improve over the long term.

Vanguard Total International Stock Index Fund ETF focuses on global companies with dividends. Reducing exposure to U.S. stocks and increasing exposure to global stocks could make sense right now. Top holdings include Taiwan Semiconductor, Novo Nordisk, and ASML Holding NV, each representing less than 2% of the portfolio.

VXUS, an ETF focusing on global equity markets outside the US, offers extensive diversification with over 8,500 holdings but has no means to generate alpha. Since 1986, US stocks have outperformed international stocks, with the S&P 500 significantly outperforming VXUS since 2011. However historically, there are nearly as many years international stocks outperform US stocks. Despite short-term fluctuations, maintaining international exposure can reduce portfolio volatility and increase yield over the long term. With the right weighting and international investment vehicle, the diversification investors seek can be properly achieved.

VXUS: Improving Outlook In 2024

The dollar's strength over the past year has led to underperformance of the Vanguard Total International Stock ETF, but the tide may be turning as US inflation decreases. The VXUS ETF provides exposure to a mix of emerging and developed market stocks, with a focus on financials and a minimal expense ratio. A weaker dollar has historically been associated with VXUS outperformance, and the ETF's valuation discount compared to the S&P 500 is at its largest on record.

The US Dollar Index has risen for eight consecutive weeks, putting pressure on foreign stocks and causing them to underperform domestic stocks. The Vanguard Total International Stock ETF is trading near all-time relative lows compared to US stocks. VXUS offers a low expense ratio and attractive valuation, but its technical picture is lukewarm and better performance is needed before a buy rating is issued.