Vanguard FTSE All-World ex U.S. Index Fund has a market-cap-weighted portfolio that holds most stocks in the international market. Its low fee and expansive portfolio make it one of the best international stock funds available.

The fund tracks the FTSE All World ex US Index. It targets mid- and large-cap stocks from international emerging and developed markets, pulling in around 3,800 names. The final portfolio weights its holdings by market capitalization. Market-cap weighting is an efficient way to size holdings because it harnesses the market's consensus opinion of each stock's relative value. Stocks that grow in size take up a larger share of the portfolio, while shrinking companies that may be struggling will have less importance.

Diversification is a strength of this portfolio, owing to its expansive target index. The fund holds over 3,700 stocks, with its 10 largest positions accounting for just 10% of assets. No one position accounts for more than 1.5% of the allocation. Some of this fund’s largest holdings are Asia-listed conglomerates like Tencent, Samsung, and Toyota.

Including emerging-markets stocks widens the scope of this fund relative to some peers. The average fund in the foreign large-blend Morningstar Category allocates less than 10% of their portfolio to these stocks, while this fund typically weights them closer to 20%. This larger allocation may give the fund a leg up, since emerging-markets stocks historically have paid for their higher volatility with strong returns during market rallies. Those stocks’ recent struggles, though, have hurt the fund’s category-relative performance in recent years. 

Low fees neutralize the negative effect of emerging-markets stocks. In the 10 years through October 2023, this fund’s cheapest share class outpaced the average peer by 39 basis points annually. Volatility was slightly higher, but risk-adjusted returns also looked favorable relative to the category average.

Analyst Rating

A complete international stock portfolio.

Analyst

Zachary Evens

ASML Hld

National Energy Services Reunited

Moelis

Shell PLC

SAP SE

Novan

AstraZeneca

Rogers

BHP Billiton

TotalEnergies SE

The fund captures most of the foreign stock market while effectively keeping a lid on turnover. It earns a High Process Pillar rating.

High

Process

The Vanguard equity index group boasts seasoned managers and a dedicated supporting staff well-equipped to provide tight index tracking, earning it an Above Average People rating.

Christine Franquin and Jeffrey Miller comanage this strategy. Franquin, a principal at Vanguard, has been with the firm since 2000. Miller, who has been with Vanguard since 2003, replaced Justin Hales on the strategy in July 2022. Franquin has shared responsibility for the fund since 2016. Vanguard frequently rotates its managers to promote breadth and depth across the team—we do not expect the manager change to disrupt the strategy in any way.

The managers are responsible for the fund's trading, providing more portfolio insights than a stand-alone trader. They are supported by a global team of dedicated personnel and sophisticated, scalable technology that optimize precision and reduce managers' workload. Vanguard's independent risk management team works closely with the managers to monitor trades and review any potential issues. Managers' compensation is tied to performance using a combination of tracking error and excess return metrics, which aligns their interests with investors'.

Above Average

People

The Vanguard Group retains a High Parent rating. 

Mutual ownership, low costs, and a direct-to-investor playbook have helped spur Vanguard's leadership within the United States. Client service missteps notwithstanding, Vanguard over the past decade has grown its market share of U.S. open-end and exchange-traded fund assets at about a 5% annualized clip. At that rate, Vanguard's portion of the U.S. industry will cross 50% around 2035.

True, some competitors can now match or even undercut Vanguard on fees for broad market exposure. But Vanguard's burgeoning advice business could help it keep or even extend that lead. Through Digital Advisor and Personal Advisor Services, Vanguard has built an increasingly compelling ecosystem of advice for investors with simple to complex needs.

Vanguard is also using its advice business to expand overseas, but that's a work in progress. Of Vanguard's USD 7.6 trillion in global assets under management in March 2023, non-U.S. investors owned less than 10%, a figure that has changed little in recent years. Strategic shifts in China and other markets account for the slow pace, including returning money to institutions that had been layering on fees. Vanguard hopes to recoup that money and more by focusing on individual investors and the advisors who serve them. Provided Vanguard sticks to its playbook, its advantages should translate into success abroad, too.

Parent

Vanguard FTSE All-World ex-US Index Fund

VEU tracks a market cap-weighted index of large- and mid-cap non-US stocks.

The fund tracks a market-cap-weighted index of large- and midcap non-US stocks.

U.S. markets have dominated for over a decade, but international stocks may gain momentum. The Vanguard FTSE All-World ex-US Index Fund ETF Shares is a good way to allocate overseas and remove U.S. exposure. The VEU ETF offers broad exposure to international equities, has a low expense ratio, and provides a higher dividend yield.

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