Relative to its substantial assets under management tally, Vanguard’s roster of exchange traded funds (ETFs) is small so when the issuer rolls out new products, it’s usually an eye-catching event.
Vanguard generated such buzz on Thursday, April 16 when it introduced two new ETFs: the Vanguard Developed Markets ex-US Value Index ETF (VDV) and Vanguard Developed Markets ex-US Growth Index ETF (VDG).
These additions to the Vanguard ETF stable are potentially noteworthy because it’s the first the issuer has ventured into styles or factors with international ETFs, though some of its previously established ex-US ETFs have value tendencies. And as advisors know, Vanguard features an extensive stable of domestic growth and value ETFs spanning large-, mid- and small-cap equities.
“The new index equity international style-based ETFs offer a cost-effective index alternative in a space dominated by active strategies,” said Dan Reyes, Global Head of Investment Product at Vanguard, in a statement. “The ETFs are designed to provide targeted exposure to developed markets equities by investment style and offer low-cost, broadly diversified options to investors in their international equity allocations.”
Examining the New Vanguard ETFs
The Vanguard Developed Markets ex-US Growth Index ETF tracks the S&P Developed Ex-U.S. LargeMidCap Growth Index, which as its name implies, is a collection of growth stocks hailing from developed markets outside the U.S.
That index debuted in 1989 so it’s been around the block and it’s home to 628 stocks, which is a large amount considering it’s a style-dedicated gauge. The interpretation of growth may surprise some investors because the index for this new Vanguard ETF allocates a combined 46.8% of its weight to financial services and industrial stocks – sectors often associated with value, particularly in the U.S. Japanese stocks represent 20.4% of the gauge while Canada and the U.K. combine for 22%.
Turning to the Vanguard Developed Markets ex-US Value Index ETF, that new Vanguard offering benchmarks to the S&P Developed Ex-U.S. LargeMidCap Value Index. That cap-weighted basket of 788 stocks has also been around since 1989.
It allocates 38.3% of its weight to financial and industrial stocks and is significantly overweight energy and materials names to the tune of almost 22% combined. That’s no surprising with a large-cap international value strategy. Confirming that there’s value in Japan, Japanese equities comprise 22.6% of the index with the U.K. placing second at 13.1%.
New Vanguard ETFs Offer Utility
As the new Vanguard ETFs ramp up, advisors may find various ways to deploy the products.
“The ETFs can be used individually for style tilts, together to break out developed markets exposure currently accessed through products like Vanguard FTSE Developed Markets ETF (VEA), or alongside Vanguard Emerging Markets ETF (VWO) to create total international equity exposure,” according to the issuer.
Of course, VDG and VDV live up to the Vanguard tradition of being cost-effective as both carry annual expense ratios of just 0.08%, or $8 on a $10,000 investment.
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