Equity: Global Ex-U.S. - Total Market
If you’re looking for exposure to global equities to complement your US exposure, your first decision is whether you want plain vanilla coverage or something different.
“VXUS holds the broadest portfolio” in this segment—ACWX, CWI, VEU, VXUS and IXUS—provide broad, market-cap-weighted exposure to the global ex-US space. VXUS holds the broadest portfolio, covering 99% of the investable market thus earning our Analyst Pick. IXUS is close behind, while the others limit their exposure to large- and midcaps. The presence or absence of small-caps generally impacts the Tradability of each fund more than its exposure and performance in our Fit analysis. VEU offers the cheapest all-in costs: It charges a low expense ratio and trades at the highest volumes and lowest spreads. VXUS and IXUS also charge low fees and offer even better coverage, but are a slightly more expensive to trade. ACWX trades well but charges a higher fee. CWI also charges a higher fee and it trades well, but stumbles on index tracking.
DBAW and HAWX offer vanilla coverage with currency exposure hedged out. Both are reasonably priced, but neither is particularly liquid, so trade carefully.
Numerous funds offer non-vanilla takes on the segment at higher prices. PID screens and weights for dividends, and only holds ADRs and GDRs. That helps liquidity, but skews the portfolio toward North American firms. IFV rotates between First Trust country ETFs based on momentum. Its underlying funds also follow specialized methodologies in an attempt to generate alpha. VIDI has a complex stock selection method, but has managed to attract massive assets since its debut. (Insight updated 10/20/17)
All Funds (28)
IXUS $7.79 B 7791726600 Great Coverage; Low Fee
VXUS $9.54 B 9536530532.55 Holds the Broadest Portfolio
ACWX $2.8 B 2795889900 Excellent Trader
VEU $21.41 B 21409492005.6 Most Liquid
CWI $1.53 B 1534474960 Tracks its Index Loosely
IQDF $974.94 M 974938616.4211 Good AUM but wide spreads
DBAW $119.93 M 119933877.571 Hedges Currency Exposure
PID $884.83 M 884827200 Holds only ADRs & GDRs
IQDE $96.06 M 96062505.2796 Trades thinly so far
IQDY $92.42 M 92415208.0046 low AUM, low trade volume
DNL $57.6 M 57597100 Seeks Growth and Yield
IPKW $194.57 M 194573500 tepid interest to date
FLIO $5.83 M 5828000 N/A
VIDI $725.32 M 725319000 Complex Stock Selection Method
DXUS $7.93 M 7931880 currency hedged dividends
IFV $816.7 M 816697611.44136 Highest fee
AADR $123.94 M 123942396.75 Actively picks ADRs
ALFI $4.95 M 4950000 N/A
IPOS $2.32 M 2322323.223 low asset base
LVIN $5.41 M 5411480 N/A
MOTI $82.31 M 82312680.6 Unique selection methodology
FPXI $22.79 M 22792320.13 low asset base
VIGI $626.93 M 626927753.22 N/A
IGRO $48.22 M 48224240 N/A
HAWX $93.14 M 93138150 Ignore bad tracking
GURI $1.58 M 1583249.549993 low AUM; thin trading
FCFI $13.05 M 13048200 fundamentals-based
CCXE $7.16 M 7155060 Trades Thinly
ETF.com Grade as 10/12/17
Equity: Global Ex-U.S. - Total Market
ETF.com Efficiency Insight
The ETFs here differ greatly in fees, assets and length of history.
Three funds clearly lead the segment on fees: VXUS, VEU and IXUS are the cheapest by far. Other ETFs charge anywhere
“IXUS stands out for very low and stable real-world holding costs” from twice to eight times as much.
Regarding tracking—a better measure of actual holding costs than fees—IXUS stands out for very low and stable real-world holding costs. In fact, the fund tends to claw back its fee through securities lending and solid portfolio management. ACWX and CWI compete head to head, tracking the same underlying MSCI index, and ACWX does a much better job of it, with lower cost and less variation.
VEU and VXUS display wide tracking variation, but this distortion results from the issuer’s use of fair value NAVs, which account for time differences in trading and therefore align the fund’s NAV closer to market prices, not the underlying index. Realized tracking results should be more consistent, but we are unable to measure them.
On assets, we see the typical rags-to-riches distribution so common in the ETF world. VEU dominates with several billion in assets, while VXUS, ACWX, IXUS and PID trail behind it with at least a billion each. At the other extreme, funds like GURI, FPXI, IPOS and CCXE have barely any assets at all (and CCXE after roughly a decade in existence). We see high closure risk for all four of these funds. (Insight updated 10/20/17)
ETF.com Tradability Insight
Tradability in the segment ranges from well-established, ultra liquid giants trading tens of millions each day to ETFs that don't trade at all.
VEU is the leader in
“VEU is the leader in liquidity” liquidity—several creation units' worth of shares change hands daily (despite a huge creation unit size) and average spreads are just a penny. ACWX and VXUS offer ample liquidity too for most investors.
The rest of the funds' liquidity ranges from decent—like IXUS, PID and CWI to poor like HAWX, IPOS and GURI that goes for days without any trades. For retail investors limit orders are imperative here.
Most funds in the segment enjoy good block liquidity, with several achieving maximum score. (IFV and HAWX have illiquid baskets that make creations and redemptions difficult.) As always though, institutions should seek the assistance of market makers and the issuers' capital market desks for best execution. (Insight updated 10/20/17)
ETF.com Fit Insight
Five ETFs in this segment provide broad, marketlike exposure. Two others hedge their currency exposure while still covering the total market.
The strength and similarity in the Fit
“ The small caps in the market are numerous and make some portfolios huge” score for the plain vanilla funds—VXUS, IXUS, VEU, ACWX, and CWI—indicate that all do a good or great job of accurately capturing the market. The main point of differentiation here is depth of coverage. Funds like VXUS and IXUS are the broadest of the broad—they aim to capture 99% of the market including small-cap firms. The small-caps in the market are numerous and make the portfolios huge: VXUS holds over 5000 stocks while IXUS holds more than 3000.
In contrast, VEU, ACWX and CWI lop off the small-caps, so their baskets hold fewer names (less than 1000 in the case of CWI). These funds opt for smaller portfolios that are easier to run and to trade, all else equal. In practice, the funds that include small-caps match the market only a slight bit better.
The two currency-hedged funds, HAWX and DBAW, track hedged versions of ACWX's index. These funds capture the broad market, but neutralize the currency exposure of the underlying securities, leading to potentially very different returns from our unhedged benchmark.
Among the remaining funds that opt not to simply "own the market", GURI stands out as the one least like our benchmark. The fund tracks an index, but looks more like an active fund. GURI gleans public filings to replicate the holdings of stock-picking hedge funds. The fund screens for "sticky" positions, so turnover shouldn't be major problem. However, the portfolio looks almost nothing like our benchmark in any way.
PID only holds ADRs and GDRs, while screening for dividends. This predictably results in a huge bias toward North American firms, as well as a yield that's roughly double that of our benchmark. Overall, it's very far from the neutral market.
IFV is extremely complex. It follows a country rotation strategy using First Trust AlphaDEX ETFs, which already have significant biases away from the market. The fund chooses which funds to hold based in part on relative momentum. Unsurprisingly, it Fits poorly.
The trio—IQDF, IQDE, and IQDY—focuses on high quality and dividends, which are popular themes across the ETF world. The funds differ in their target risk: IQDF aims for marketlike risk, IQDE shoots for lower risk and IQDY takes on higher risk in hopes of higher returns. Our beta analysis shows the funds more or less hit their marks in market risk, though none takes a radical posture. Their portfolios show low P/Es and higher yield consistent with their goal.
VIDI relies on a complex index that uses both risk and fundamental factors. The fund diverges from the market as it significantly favors Latin America and Asia at the expense of Europe. (Insight updated 10/20/17)