We have qualitatively reviewed this strategy and reaffirmed its Above Average People and Process ratings. The following text is from April 28, 2023.

Vanguard FTSE All-World ex-U.S. Small-Cap ETF’s low fee and diversified portfolio should prove tough to beat. 

The fund tracks the FTSE Global ex US Small Cap Index, which includes small-cap stocks from more than 40 developed and emerging markets outside of the United States. It weights holdings by market cap, an efficient approach that 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 smaller companies that may be struggling take on a less important role. This helps rein in turnover, which has averaged 16% over the past 10 years, more than 30 percentage points less than the Morningstar Category norm.

The portfolio effectively diversifies away any single-stock risk with more than 4,000 holdings and just 3% of assets concentrated in its top 10, as of March 2023.

Minimizing stock-specific risk does not minimize region-specific risk. Small-cap stocks tend to be better connected to their local markets than their larger counterparts and the fund can be susceptible to movements of the sometimes-volatile local markets that its portfolio features. Recently the fund has held around a 15% stake in emerging-markets stocks, which also tend to be relatively volatile. Typical peers usually allocate less than 4% of their portfolios to emerging markets. This expands the fund’s scope relative to some peers, but it can contribute to a bumpy ride from time to time.

A greater allocation to emerging markets comes with greater exposure to fluctuations of commodity prices. Emerging economies tend to favor materials and energy companies whose businesses are closely tied to the relevant raw materials. The portfolio consistently features a greater allocation to these sectors, meaning commodities' prices can nudge fund performance.

Heavier stakes in stocks linked to commodities has hurt performance. The ETF share class lagged the category average by 71 basis points per year over the 10 years through March 2023. Most of that deficit occurred between 2011 and 2015, when commodity prices broadly declined and hurt the businesses closely tied to them. While these market segments can hold performance back sometimes, in the long term fees usually have a larger impact. Each of the fund’s share classes ranks well within the category’s cheapest quintile, which should provide a reliable edge over the long run.

Analyst Rating

Expansive foreign small-cap coverage for a low cost.

Analyst

Zachary Evens

Ritchie Bros. Auctioneers

TFI International

Open Text

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United States Steel

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FirstService

We have qualitatively reviewed this strategy and reaffirmed its Above Average Process rating. The following text is from April 28, 2023.

This fund tracks the FTSE Global Small Cap ex US Index. Its broad scope promotes diversification and market-cap weighting helps rein in turnover. It earns an Above Average Process Pillar rating.

Above Average

Process

We have qualitatively reviewed this strategy and reaffirmed its Above Average People rating. The following text is from April 28, 2023.

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 Pillar rating.

Michael Perre and Jeffrey Miller share responsibility for this fund. Perre is a principal at Vanguard, while Miller is a portfolio manager and trader. Both have more than a decade of experience at Vanguard and help captain some of the firm’s largest index-tracking funds listed in North America.

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 improve index tracking while reducing the managers' workload. Vanguard frequently rotates its managers to promote breadth and depth across the team. Its independent risk management team works closely with the managers to monitor trades and review any potential issues. The managers' compensation is tied to performance using a combination of tracking error and excess return metrics, which aligns their interests with investors'.

People

As The Vanguard Group settles on new senior leadership, it retains a High Parent rating.

Vanguard announced current CEO Tim Buckley will step down by the end of the year, marking an end to his 33 years at the firm. Historically, Vanguard has pronounced CEO retirements while simultaneously signaling who (from inside the firm) would take over. In this instance, Vanguard’s board said it will evaluate internal and external candidates in the coming months to find its next, and fifth, leader, though it also promoted CIO Greg Davis to president.

Vanguard flourished in several respects under Buckley’s leadership. Assets under management have grown by two thirds over his six years at the helm, while its asset-weighted average US fund fee ratcheted lower to 0.08% at the end of 2023. Vanguard further refined its advice business through its low-cost Digital Advisor platform and more holistic Vanguard Personal Advisor Services, and it debuted promising investment options.

Vanguard has had its share of challenges under Buckley, too. Growing its business outside the US has proved difficult, and ex US investors account for less than 10% of AUM. Between 2019 and 2023, Vanguard’s efforts to build its China business underwent dramatic shifts, with the firm ultimately abandoning plans to launch low-cost index funds there. It also ended a partnership with Ant Financial to provide advisory services to retail investors. Inside the US, customer service issues have continued to be a problem, and some of Vanguard’s newer offers, such as margin loans, seem a departure from a more-conservative approach to investing.

Vanguard retains an investor-friendly culture at its core that’s burnished by a commitment to low costs and supported by its unique mutual ownership structure and direct-to-investor playbook.

High

Parent

Vanguard FTSE All-World ex-US Small-Cap ETF

VSS tracks a market-cap-weighted index of global non-US small-cap stocks.

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Exchange-traded funds (ETFs) have emerged as a favored instrument for investors seeking straightforwardness, outstanding performance, and cost-effectiveness. Vanguard has transformed into a preferred ETF provider, owing to the company's approach that prioritizes the interests of shareholders.

Vanguard ETFs: An Overview

U.S. small-cap stocks have underperformed in recent years, but investing in small-caps outside the U.S. may offer diversification and catch-up momentum potential. Vanguard FTSE All-World ex-US Small-Cap Index Fund ETF Shares allows investors to diversify their portfolios with a low expense ratio and a highly diversified portfolio. The VSS ETF has outperformed similar international small-cap ETFs and offers broad diversification, low expense ratio, and attractive PE ratios, but comes with geopolitical and currency risks.

VSS: Super Diversified International Small-Cap Exposure That Beats The Rest

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With so many small and mid-cap ETFs out there, which might be the best to own right now. I'll restrict this analysis to Vanguard ETFs which seem to have a reasonable exchange policy and which offers among the best returns over the long term. My top choices are based on which Vanguard ETF have shown the best returns over the last five years, with the admonition that past returns may not predict the future.

Vanguard Has 17 Small And Mid-Cap ETFs. Which Are Best Right Now?

Vanguard FTSE All-World ex-US Small-Cap Index Fund ETF Shares is invested in over 4000 small and mid-cap stocks from developed and emerging markets. The VSS ETF is well-diversified across countries, sectors and holdings, and shows a better-than-average valuation in its investing universe. With a low expense ratio and an attractive performance in its category, VSS is a good option for investors seeking global diversification with a focus on smaller companies.

VSS: Well-Ranked In The Global Small-Cap ETF Category

Small cap ex-US keeps correlations low with overperforming US large cap indices. Having lagged in performance compared to US large caps, ETFs like the Vanguard FTSE All-World ex-US Small-Cap ETF could be an attractive factor to cycle into. PEs are low, there are usually idiosyncratic growth opportunities in small cap, and the expense ratio on VSS is low, making this a useful factor asset.

VSS: Ex-U.S. Small Cap Tends To Get Abandoned

Vanguard FTSE All-World ex-US Small-Cap ETF has a large asset base and its portfolio is well-diversified among all the major developed markets and the largest growing emerging markets. VSS is currently trading at par with its NAV and its low expense ratio enabling investors to gain from such diversified holdings while bearing a very low risk.

VSS: Low-Yielding Small-Cap Ex-US ETF Unattractive Despite Decent Total Return

VettaFi's vice chairman Tom Lydon discussed the Vanguard FTSE All World ex-US Small-Cap ETF (VSS) on this week's “ETF of the Week” podcast with Chuck Jaffe of “Money Life.” This marks the second Vanguard fund in a row featured on “ETF of the Week.

ETF of the Week: Vanguard FTSE All World ex-US Small-Cap ETF (VSS)

Vanguard FTSE All-World ex-US Small-Cap ETF invests in growth and value stocks of small-cap companies in equity markets outside the US, and generates low but decent yield. VSS generates a decent overall return over the longer term, and the fund's returns are also in sync with other small-cap equity funds.

VSS: Low-Yielding Diversified Small-Cap Fund Investing In Right Markets

VSS has cyclical exposures, but the very low P/E seems to take this into account. There isn't much of an undeveloped market risk at least, and some key sectoral exposures are solid, but overall there are questions about forward earnings.

VSS Has Developed Market Exposures But Questionable Forward Earnings

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VSS is a fund with a large portfolio of international small caps. Main exposures are in sensitive and cyclical sectors.

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The 3 ETFs to invest globally in Q2 2021 are VSS, ACWI, and VEU

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International Mid/Small-Cap stocks market value is 6% of the total world's equity market, but US investors' allocation is just 1.6% in mutual funds to this asset class. Since 1995, Small-Cap stocks are the best performers of the seven International classifications available on PortfolioVisualizer.

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The 3 ETFs to invest globally in Q1 2021 are ACWI, VEU, and VSS

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Right before Christmas, Vanguard spread some holiday cheer, announcing fee reductions on nine equity and fixed income exchange traded funds, most of which are international products.

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Vanguard, the second-largest U.S. issuer of exchange traded funds, is again wielding its low-cost sword.

News for Vanguard FTSE All-World ex-US Small-Cap ETF ETF (VSS)