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Summary This fund serves a viable core holding for the international portion of an equity portfolio. Investors can customize their position by adding other small allocations. Investors need to remember the importance of international diversification even as domestic equity as thoroughly outperformed during the latest bull market. The ETF has an very reasonable expense ratio. The Vanguard FTSE Developed Markets ETF (NYSEARCA: VEA ) is a great ETF for getting exposure across the world. I love covering Vanguard ETFs because the low expense ratios and reasonable allocations regularly give me reason to be excited about an ETF being designed to benefit the investors. This is no exception, the ETF sports an expense ratio of.09%. Vanguard regularly sets the bar for creating low fee investment vehicles for investors to gain solid diversification with low costs. Holdings I grabbed the following chart to demonstrate the weight of the top 10 holdings: These sector allocations are fairly common for large international equity ETFs with a fairly passive management style and low expense ratio. In my coverage of international ETFs, I regularly see most of these companies in the top 10. If you wonder what that means for investing, it means the funds with lower expense ratios have a very material advantage. It’s hard enough to beat a lower fee fund when the sector allocations are similar, when the underlying companies are the same it becomes an absurd task. That makes the .09% expense ratio a pretty big winner for VEA. Sectors (click to enlarge) The sector allocations here are pretty similar to the benchmark and pretty similar to peers. Since the top companies are fairly similar across major international ETFs, it shouldn’t be a huge surprise that the sector weights will also be fairly similar. In a domestic fund I would consider this to be a fairly aggressive allocation. When it comes to international equity, this reflects what is available in the market. I would love to see international investing shift to include more of the defensive sectors to reduce the volatility that can plague international investments, but for now the best strategy available to shareholders is to simply utilize international investing as a way to gain further diversification for an intelligently designed domestic portfolio. Attempting to use VEA as the entire portfolio would expose investors to a substantial amount of diversifiable risk. However, using the fund within the context of a portfolio allows it to enhance diversification and create a lower level of total risk rather than a higher level. Region Japan and the United Kingdom both got huge weightings here. If there is one critique for this otherwise stellar ETF it would be that the exposure might be weighted to create a slightly lower allocation towards individual countries. I’ve got nothing against investing in Japan or in the United Kingdom, but I would like to see heavier weights for the lower countries on the list. If investors want to create the optimal international allocations, I think VEA is a perfectly reasonable place to start. I would want to add some customized exposure to the emerging markets and possibly enhance the weight of countries that are a smaller portion of the fund. I’ve been a bear on China for quite a while, but many of my bearish assumptions have been priced into the Chinese equities now so I wouldn’t be too opposed to having a small allocation there. I’d love to add some exposure to Latin America as well. Russia is another market that is still excluded from the developed markets ETF. I would want to give the emerging markets positions a much lower weighting than the developed markets position, but I wouldn’t mind a small position in those markets. Conclusion I see plenty to like in this Vanguard fund and very little to dislike. For my personal tastes, I would want to add a little bit of emerging market exposure, but a huge developed market ETF with a low expense ratio gives investors a way to grab their main international exposure so that other positions can be customized to fit in any other small allocations the investor would like. Think of this fund as an option for the core of the international piece of the portfolio. For some investors this will be enough by itself, for others it will make sense to compliment it with a few other holdings. Scalper1 News
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