Vanguard Total World Stock Index Still Not a Buy

by Dan Wiener | August 12, 2013 12:14 pm

Vanguard’s first global stock index fund, Vanguard Total World Stock Index (VTWSX[1]), passed the five-year milestone this year on June 26, and hats off to Vanguard — it has done a masterful job of tracking its benchmarks.

Whether you want to own it is another story entirely, but first, the numbers:

I took a look at how Total World Stock performed against a 45%/55% mix (the target mix of U.S. to foreign stocks in the world fund) of Vanguard Total Stock Market (VTSMX[2]) and Vanguard Total International (VGTSX[3]), rebalanced daily, as well as the same combination rebalanced just once per year on its anniversary. In essence, there was virtually no difference in performance. Over the five-year period, Total World Stock generated a total return of 14.1%. The combo that was rebalanced every day gained 14.5%, while the mix that was rebalanced once per year returned 14.4%.

Despite all of the ink spilled, I’ve long held the opinion that there is little benefit in rebalancing when it comes to returns. In this situation, rebalancing actually increased risk ever so slightly, with the maximum cumulative loss (or MCL) for the rebalanced portfolios running a bit more than 0.5 percentage points worse.

8-12-13-world-etf[4]Now, as to the question of whether Total World Stock is a good fund for your portfolio, I’m not a big fan.

VTWSX has value as an all-in-one option for indexers who take the efficient market theory to its ultimate conclusion: that one should simply mimic the world market as a whole. But I’m not a big believer in efficient markets, overall, since managers like Don Kilbride at Vanguard Dividend Growth (VDIGX[5]), the PRIMECAP Team at Vanguard Capital Opportunity (VHCOX[6]) or Virginie Maisonneuve at Vanguard International Growth (VWIGX[7]) have made mincemeat of their benchmarks.

Traders like the fund, though. While the open-end fund shares and the institutional fund shares represent about $1.1 billion in assets, the ETF shares of Vanguard Total World Stock (VT[8]) total more than twice that at about $2.3 billion … though, as the graph shows, the blush might have come off that rose recently.

So, happy belated birthday to Total World Stock. Don’t mind me, though, if I don’t bring a present.

Editor Dan Wiener and Research Director Jeffrey DeMaso publish The Independent Adviser for Vanguard Investors[9], a monthly newsletter that keeps abreast of recent developments at Vanguard, and the annual FFSA Independent Guide to the Vanguard Funds.

  1. VTWSX:
  2. VTSMX:
  3. VGTSX:
  4. [Image]:
  5. VDIGX:
  6. VHCOX:
  7. VWIGX:
  8. VT:
  9. The Independent Adviser for Vanguard Investors:

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