Buying international stock ETFs can be a good move if you want to diversify your portfolio away from the U.S. market. International companies are benefiting from the artificial intelligence (AI) boom, and other countries' economies sometimes grow faster than America's.
But what's the best international ETF for your goals? Different global ETFs offer different mixes of stock holdings and can have widely different results.
The iShares Core MSCI Total International Stock ETF (IXUS +0.56%) is a broad stock market index ETF that offers more than 4,000 stocks from more than 20 countries at a low expense ratio of 0.07%. This diversified low-cost index fund makes it easy to invest in the rest of the world beyond America.
The Vanguard International High Dividend Yield ETF (VYMI +0.44%) offers a narrower selection of holdings, with nearly 1,600 stocks, but the same low expense ratio of 0.07 %. This fund focuses on stocks that are expected to deliver higher-than-average dividends. In the past five years, VYMI shares have gained about 44%, strongly outperforming IXUS (which is up about 30%).
Which of these international ETFs is a better buy -- the more diversified fund, or the fund that focuses on high dividends?
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IXUS: A low-cost way to buy the world
It's not always easy for American investors to buy international stocks. Some companies' stocks are only traded on other countries' stock exchanges, which can be harder for Americans to access. If you want to minimize some complexities of buying international stocks, the iShares Core MSCI Total International Stock ETF makes it simple.
NASDAQ: IXUS
Key Data Points
This fund lets you quickly get exposure to 4,158 stocks (as of May 7). The ETF is low-cost and broadly diversified. The top countries represented in this fund include developed markets such as Japan (14.9% of the fund) and the United Kingdom (8.3%), plus emerging markets like Taiwan (8.3%) and China (6.8%).
The iShares Core MSCI Total International Stock ETF is an all-cap fund, meaning it holds stocks of companies of all sizes -- large-cap, mid-cap, and small-cap. It lets you own Financial stocks (22.03% of the fund), Information Technology stocks (18.8%), Industrials (15.7%), and more.
VYMI: Focuses on higher dividends
NASDAQ: VYMI
Key Data Points
The Vanguard International High Dividend Yield ETF offers a different investment strategy. Instead of giving you exposure to more than 4,000 stocks, this fund focuses on a smaller number of companies -- 1,597 stocks (as of March 31).
And although this fund owns some emerging market stocks (22.3% of the fund), the fund's top five markets are all developed market countries:
- Japan (11.8% of the fund)
- United Kingdom (11.3%)
- Canada (8.5%)
- Switzerland (7.6%)
- Australia (7.4%)
VYMI also offers a wide range of sectors, but the top holdings are less tech-heavy. The top 10 stocks owned by this fund are mostly pharmaceutical stocks and major international banks, along with Shell PLC (SHEL +0.47%) (a major energy stock), Nestlé (NSRGY +1.76%), and Toyota Motor (TM 0.09%).
IXUS vs. VYMI: Which ETF should you buy?
If you want a simple, low-cost international ETF, the iShares Core MSCI Total International Stock ETF could be worth considering. There's nothing wrong with buying a broadly diversified international ETF that gives you exposure to the rest of the world outside of America.
But the Vanguard International High Dividend Yield ETF has significantly outperformed the other fund for the past 10 years. The dividend-focused fund (VYMI) has delivered total returns averaging 10.4% annually for the past 10 years, while IXUS has delivered average annual total returns of 9.3% over that time frame.
VYMI offers a dividend yield of 3.47% and a price-to-earnings (P/E) ratio of 14.5, while IXUS has a dividend yield of 2.94% and a P/E ratio of 18.1. This suggests that the Vanguard International High Dividend Yield ETF might be cheaper than IXUS.
It's possible that high-dividend stocks will underperform the rest of the world's stocks in the future. But if you want to buy an international ETF that focuses on consistently profitable companies in developed markets, the Vanguard International High Dividend Yield ETF might be a better buy than the iShares Core MSCI Total International Stock ETF.
