Bullish on Earth? This Vanguard ETF Is for You

by Kyle Woodley | November 21, 2013 9:49 am

If you’re planning on financing a happy retirement, you’d better be an optimist. After all, your 401k and IRAs aren’t going to do squat if stocks do a tumble for 30 or 40 years.

Sure, a lot of that hope should be on the U.S. keeping the gravy train flowing. If you’re reading this, you’re probably in America, which means you’re likely retiring in the U.S. … and chances are, you have a heavy tilt toward American stocks, too. That’s just fine.

But maybe you should be bullish on the whole darn planet.

U.S. stocks aren’t just U.S. stocks anymore. You hear it every day. Apple (AAPL[1]) needs to figure out China. Automakers like Ford (F[2]) and General Motors (GM[3]) have long been hampered by Europe. American companies are becoming increasingly international in nature because that’s where the opportunities lie.

But it’s also because, as growth is coming from all across the planet, you’re better off putting your eggs in a number of countries’ baskets rather than bet the entire farm on the good ol’ USA.

In which case, one particular Vanguard ETF stands out as a winner.

The Vanguard Total World Stock Index ETF (VT[4]) is a Vanguard ETF that gives you the best of both worlds. Roughly half the fund is grounded in U.S. equities. The rest is spread across the globe, in 47 countries currently.

Top holdings for this Vanguard ETF read like the S&P 500 SPDR ETF (SPY[5]) — American titans Apple, Exxon Mobil (XOM[6]), Google (GOOG[7]), Microsoft (MSFT[8]) and General Electric (GE[9]) are in the top five of both SPY and VT. In fact, you don’t come across an international holding until No. 10, Switzerland’s Nestle (NSRGY[10]).

But as I said before, those companies aren’t as red-white-and-blue as you’d think.

For instance, Apple’s international sales made up 60% of its total revenues in the most recent quarter. And 75% of Exxon’s earnings (before corporate and financing costs) came from outside of the U.S. So even your “national” exposure is pretty international.

VT also has some heavy weight in Japan (8.4%) and the United Kingdom (8%), and splits the rest among established economies such as Canada and Germany, as well as small exposure to more emerging ones like Mexico and Malaysia.

And it’s that global exposure that makes VT a pretty appealing alternative to the SPY itself right now.

The S&P 500’s nearly 26% year-to-date run has been exciting, but it has sent valuations skyward. The index’s trailing P/E currently sits around 19.65, which is several points above its long-term average.

And American stocks are kicking the pants out of the rest of the world. The SPY is beating all but one of the major country ETFs — Ireland (EIRL[11], +39%) — this year.

Point being, a little mean reversion seems pretty reasonable to expect. That isn’t to say the S&P is going to fall into a hole — but it’d be easy to see American stocks pushing forward at a slower rate and the rest of the world playing catch-up.

If so, VT would put you in the perfect position — still able to enjoy the strength of U.S. stocks, but able to catch the world’s tailwind if it picks up.

Meanwhile, you enjoy similar reliability that you get out of the venerable American blue-chip index.

Vanguard Total World has a nice, stout makeup that includes a median market cap of $32.3 billion across its holdings — which is impressive considering VT consists of more than 5,000 stocks.

That focus on large, established companies produces a desirable income side effect, too: VT yields roughly 2.4% in dividends — 50 basis points better than the SPY.

And it wouldn’t be a Vanguard fund review without pointing out the expense ratio. At 0.19%, that’s eye-poppingly high compared to many other Vanguard ETF offerings, but still leaps and bounds better than what you’d pay for a comparable mutual fund, and 10 basis points more than the SPY.

Obviously, if you want to make a targeted play on one part of the world or another, VT isn’t your fund. But if you’re looking for a set-it-and-forget-it way to get both U.S. and broad international exposure, Vanguard Total World fits the bill.

Kyle Woodley[12] is the Deputy Managing Editor of InvestorPlace.com[13]. As of this writing, he was long F, GE and SPY. Follow him on Twitter at @IPKyleWoodley[14].

  1. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  2. F: http://studio-5.financialcontent.com/investplace/quote?Symbol=F
  3. GM: http://studio-5.financialcontent.com/investplace/quote?Symbol=GM
  4. VT: http://studio-5.financialcontent.com/investplace/quote?Symbol=VT
  5. SPY: http://studio-5.financialcontent.com/investplace/quote?Symbol=SPY
  6. XOM: http://studio-5.financialcontent.com/investplace/quote?Symbol=XOM
  7. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  8. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  9. GE: http://studio-5.financialcontent.com/investplace/quote?Symbol=GE
  10. NSRGY: http://studio-5.financialcontent.com/investplace/quote?Symbol=NSRGY
  11. EIRL: http://studio-5.financialcontent.com/investplace/quote?Symbol=EIRL
  12. Kyle Woodley: https://www.investorplace.com/author/kyle-woodley/
  13. InvestorPlace.com: https://investorplace.com
  14. @IPKyleWoodley: https://twitter.com/#%21/ipkylewoodley

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