What Makes Vanguard Total International Stock Index Fund One of the Best

Key Morningstar Metrics for Vanguard Total International Stock Index Fund

• Morningstar Medalist Rating: Gold
• Process Pillar: High
• People Pillar: Above Average
• Parent Pillar: High

Vanguard Total International Stock Index’s VTIAX low fee and broad, market-cap-weighted portfolio of nearly every non-U.S. stock in the market make it one of the best international stock funds available.

The fund tracks the FTSE Global All Cap ex US Index. It pulls in about 8,500 small-, mid-, and large-cap stocks from international emerging and developed markets. The final portfolio weights its holdings by their market capitalizations, which is an efficient way to size holdings because it harnesses the market’s consensus opinion of each stock’s relative value. Stocks that grow take up a larger share of the portfolio, while shrinking companies that may be struggling occupy less real estate.

Diversification is one of this fund’s strengths, owing to its expansive target index. The fund spreads its assets across more than 8,500 stocks and keeps just 9% of assets in its 10 largest holdings. No one stock accounts for more than 1.5% of the fund. Some of this fund’s largest holdings are Asia-listed conglomerates like Tencent, Samsung, and Toyota.

Including emerging-markets stocks distinguishes this fund relative to some peers. The average foreign large-blend Morningstar Category fund has less than 10% of its portfolio in developing-markets stocks, while this fund typically puts close to 20% there. The help from bigger emerging markets can boost the fund’s performance when those regions rally, though it also adds a little more volatility when compared with funds that invest only in developed markets. Indeed, in recent years, emerging markets have been a drag on the fund’s category-relative performance.

Emerging markets could turn from hindrances to helpers when their fortunes change, though. And in the meantime, the fund’s low fees make up for some of their recent lagging performance. In the 10 years through November 2023, this fund’s cheapest share class edged the average peer by a handful of basis points, or hundredths of a percent, annually. Despite slightly higher volatility, risk-adjusted returns also looked better than the category average.

Vanguard Total International Stock Index: Performance Highlights

The fund’s cheapest share class gained 3.73% annually through Nov. 30, 2023, edging the category average of 3.65%.

While its lower fee provides a durable advantage, its country and regional allocations can drive category-relative performance from time to time. For example, the fund’s hefty helping of emerging markets has hurt relative performance in recent years as those stocks have underperformed. Over the long term, though, its low fee and superior diversification should compensate for any short-term hiccups.

This fund does not hedge currency risk. This has mostly hampered performance since the U.S. dollar has been stronger than the foreign currencies represented in this portfolio. However, the advantages and disadvantages of currency hedging come in waves. Over the long run, the impact of foreign-exchange rates on total return tends to wash out.