Vanguard Planning Another Global Ex-U.S. ETF

by on September 29, 2010 | ETFs Mentioned:

As the ETF industry has surged ahead in recent years, one company has managed to dominate the space by amassing more assets than almost all of its competitors combined. That firm is of course iShares, which currently has over 200 ETFs including nine that have cracked the impressive $10 billion in assets under management mark. This continued dominance and diverse product lineup has made the iShares name nearly synonymous with the ETF industry.

But other issuers have been aggressive in their pursuit of the industry leader; State Street has managed to develop a large following thanks in part to the popularity of its gold ETF and S&P 500 SPDR, which currently rank as the two largest U.S.-listed ETFs. Meanwhile, Vanguard has taken on the giant in the cost arena, as many of the firm’s ETF products are among the cheapest in their respective ETFdb Categories [see the 25 cheapest ETFs].

The battle for ETF market share has heated up in recent months as Vanguard has expanded its product lineup to target a variety of asset classes that were once the sole dominion of iShares. And this trend looks likely to continue; Vanguard recently announced that it will change the target benchmark of its Total International Stock Index Fund from the MSCI EAFE + Emerging Markets Index to the MSCI All Country World ex USA Investable Market Index. In addition to that tweak, Vanguard will offer five new shares classes of the fund, including ETF shares. Vanguard has a patent on a unique share class structure that allows the company to offer ETFs as separate share classes of its index mutual funds.

The underlying index represents about 98% of the world’s non-U.S. equity markets, and includes some 6,000 stocks from 23 developed countries and 21 emerging markets [also check out our new Mutual Fund to ETF Converter]. The developed market country indexes included are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. Meanwhile for emerging market country indexes, the following nations make it on to the list; Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

Competing On Cost

The proposed Vanguard fund would overlap partially with an existing product in the company’s lineup; the FTSE All-World ex-US Index Fund (VEU) offers diversified exposure to emerging and developed economies outside the U.S. The new fund could also compete with the popular iShares MSCI ACWI ex US Index Fund (ACWX), which tracks the same index as the proposed Vanguard ETF and has just over $750 million in assets under management. ACWX charges investors an expense ratio of 35 basis points; the proposed Vanguard ETF shares would charge 20 basis points [see Ten ETFs Every Advisor Should Know (But Most Have Never Heard Of)].

“We believe that the new target benchmark offers a better representation of the international equity universe, offering exposure across the capitalization spectrum, including small-cap issues,” said Vanguard’s Chief Investment Officer Gus Sauter in a press release.

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Disclosure: Eric is long VWO.