Many readers are interested in learning more about the possibility of capturing exposure to most world markets in one fund through the Vanguard FTSE All-World Ex-US ETF, which trades on the AMEX under the ticker symbol VEU. The Vanguard website says that the FTSE All-World Ex-US Index tracks the performance of approximately 2,200 stocks in developed and emerging markets excluding the U.S. The VEU is a perfect holding for a U.S. investor as it allows them to get exposure to every major world market instead of buying three ETFs separately – Vanguard Europe Pacific ETF (VEA), Vanguard Emerging Markets ETF (VWO) and iShares MSCI Canada Index Fund (EWC).
The advantage of VEU for a Canadian investor is readily apparent – savings on trading commissions compared to the alternative of buying VEA and VWO. However, Canadians already have significant holdings in local markets through index funds, ETFs, mutual funds or direct stock holdings and need to calibrate their allocation to Canadian equities to account for the additional exposure through VEU, which at present is 5.5%. In addition, VEU’s MER of 0.25% is almost twice as expensive as a combined holding in VEA and VWO. A Canadian investor splitting the international (excluding U.S.) holdings at roughly 80% in VEA (MER of 0.12%) and 20% in VWO (MER of 0.25%) pays a blended MER of approx. 0.15%.
Bottomline: VEU is interesting for Canadian investors but the two disadvantages (the complication in asset allocation to account for the extra Canadian holdings through VEU and the higher expense) should be carefully weighed against the one obvious advantage of buying one less ETF when compared to the alternative of buying VEA and VWO.