VTI - VXUS: There Are Good Reasons Why It Continues To Underperform The S&P 500

2024-07-12 10:06:13 ET

Summary

• Orthodox investment practice allocates a third or more of total assets to Ex-US Funds. Compared to U.S.-only investment, this has led to dramatic underperformance lasting over a decade.
• We examine the reasons why The Vanguard Total International Stock Market ETF has done so poorly by looking closely at its holdings.
• We also list several persistent qualitative factors that suggest broad market international ETFs will not see their performance improve over the long term.

As the P/E ratio of the S&P 500 ( SP500 ) continues its climb towards 30, nervous investors often suggest that investing in ETFs that hold stocks from countries besides the United States might be a good way to protect their assets. That's largely because the ETFs that invest in those markets have far lower P/E ratios right now.

For example, The Vanguard Total International Stock Market ETF ( VXUS ) and its various mutual fund share classes with its $429 billion AUM is by far the largest of any fund that invests in stocks based in countries outside of the US. Vanguard tells us that as of 5/31/24, the latest date for which it releases data, VXUS's P/E ratio was only 15.4. Vanguard's S&P 500 ETF ( VOO ) at the same time had a P/E ratio of 26.1. Since then, the P/E of the S&P 500 has risen even further and currently stands at 27.69 ....

For further details see: