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Foreign Developed Mkts Lrg Cap Funds

 

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There is at least one good reason why most investors should consider investing a portion of their portfolios in foreign stocks:

bulletForeign stocks have imperfect correlations with domestic stocks, so including them in a portfolio should improve the portfolio's risk/return characteristics.

For more information on investing overseas, see here.

There are several similar-seeming investment options available.  Which is best?

The funds are listed in rough order of our overall preference.

Preferences are listed separately for use in retirement accounts and for taxable accounts.

For a listing of our preferences in other asset classes, see here.

Retirement Accounts (i.e., tax-deferred or tax-exempt accounts)

bulletAQR International Momentum Style Fund (AIMOX).  E/R: 0.55%.  This fund invests in large non-US developed mkt momentum stocks (i.e., stocks that have done well over the past 12 months, excluding the most recent month).  Momentum has been shown to have both a positive risk premium and a negative correlation with the value premium.  Thus, momentum stocks are good diversifiers to value stocks.  As such, this fund is most appropriate for those who are using it to both get large cap non-US developed mkts exposure and to diversify value exposure elsewhere in their portfolio.  Because this fund is expected to have very high turnover and is not managed to minimize capital gains distributions, it is inappropriate to hold it in a taxable account, unless you have high realized capital losses banked.   For more information on momentum investing, see here.

bulletVanguard Developed Markets Index Fund Admiral Shares (VTMGX).  E/R: 0.09%.  This fund is an FTSE Developed All Cap ex US Index Fund.  There is a $10,000 initial minimum purchase requirement.

bulletSchwab International Equity ETF (SCHF).  E/R: 0.07%.  This ETF tracks the FTSE Developed ex-US Index of large cap stocks in developed markets outside the US.  For more information on ETFs, see here.   We like this fund because it is more diversified than VDMAX and it should have less tracking error than VEA.
 
bulletVanguard Developed Markets Index ETF (VEA).  E/R: 0.09%.  This ETF is a share class of the Vanguard Developed Markets Fund (VDVIX).  It attempts to track the FTSE Developed All Cap ex US Index.  For more information on ETFs, see here.
 
bulletiShares MSCI International Developed Momentum Factor ETF (IMTM).  E/R: 0.30%.  This fund tracks the MSCI World ex USA Momentum Index of large- and mid- cap stocks in developed mkt countries outside the US which have been exhibiting strong risk-adjusted price momentum over the past 6- and 12- month periods.  We like that this fund has such a low expense ratio.  We don't like that the index's definition of momentum differs from that shown in the original Jegadeesh/Titman research as optimal.  For more information on ETFs, see here.  For more information on momentum investing, see here.
 
bulletiShares Core MSCI EAFE ETF (IEFA).  E/R: 0.08%.  This ETF tracks the MSCI EAFE Investable Market Index.  For more information on ETFs, see here.
 
bulletiShares Edge MSCI Minimum Volatility EAFE ETF (EFAV).  E/R: 0.20%.  This ETF tracks the MSCI EAFE Minimum Volatility Index.  For more information on ETFs, see here.
 
bulletFidelity Spartan International Index Fund - Fidelity Advantage Class (FSIVX).  E/R: 0.12%.  Minimum initial purchase: $10,000.  This fund tracks the MSCI EAFE Index of non-North America Large Cap stocks.  The fund charges a short-term redemption fee of 1.0% if you sell shares within 90 days of buying them.  This fee, paid directly to the fund, is intended to discourage market timing.
 
bulletVanguard Developed Markets Index Fund (VDVIX).  E/R: 0.20%.  This fund is an FTSE Developed All Cap ex US Index Fund.

bulletDFA Large Cap International Portfolio (DFALX).  E/R: 0.28%.  This fund invests in large-cap stocks (i.e., top 80% of market capitalization in each country) from developed markets outside of North America. This fundís target country allocation roughly conforms to the MSCI EAFE index. However, they donít necessarily buy stocks with the goal of replicating the index. They buy stocks using a sampling methodology, but they attempt to weight each stock according to its market capitalization (like the index does).  Their methodology suggests that their pre-expense returns ought to be similar to those of the MSCI EAFE Index. They attempt to add value by not having to slavishly follow the index Ė thus avoiding certain problems that all true index funds have regarding reconstitution.

bulletPowerShares BLDRS Developed Markets 100 ADR Index Fund (ADRD).  E/R: 0.30%.  This ETF tracks an index of large developed markets stocks which happen to have ADRs (American Depositary Receipts) trading on US exchanges.  This fund isn't very well diversified.  For more information on ETFs, see here.

bulletSPDR S&P World ex-US ETF (GWL).  E/R: 0.34%.  This ETF tracks the S&P Developed ex-US BMI Index of non-US developed market large cap stocks, including those in Canada (which are left out of the MSCI EAFE index).  We see no good reason to buy it in retirement accounts.  For more information on ETFs, see here.

bulletiShares MSCI EAFE Index Fund (EFA).  E/R: 0.34%.  This ETF tracks the MSCI EAFE index.  We see no good reason to buy it in retirement accounts.  For more information on ETFs, see here.

bulletPowerShares S&P International Developed Momentum Portfolio ETF (IDMO).  E/R: 0.26%.  This fund tracks the S&P Momentum Developed ex U.S. & South Korea LargeMidCap Index of non-US Developed-Markets large-cap stocks which have been exhibiting strong risk-adjusted price momentum over the past 12 months (excluding the most recent month).  This is a very new fund that will be somewhat illiquid for a while - until/unless it becomes larger.  We don't like that the index's definition of momentum differs from that shown in the original Jegadeesh/Titman research as optimal.  For more information on ETFs, see here.  For more information on momentum investing, see here.

bulletMomentumShares International Quantitative Momentum ETF (IMOM).  E/R: 0.79%.  The MomentumShares International Quantitative Momentum ETF tracks an equal-weighted index of developed-market ex-US stocks with strong and consistent momentum.  IMOM targets the 10% of stocks with the highest total return over the last 12 months, excluding the most recent month. The fund also screens for consistency of momentum by excluding stocks with too many negative-return days during the 12-month period. This methodology produces a few dozen holdings which get weighted equally.  We don't like that the fund has such a relatively high expense ratio.  For more information on ETFs, see here.  For more information on momentum investing, see here.

bulletT.Rowe Price International Equity Index Fund (PIEQX).  E/R: 0.5%.  This fund tracks the FTSE Developed Ex. North America Index of large-cap foreign stocks.

bulletPIMCO International StocksPLUS TR Strategy Fund Institutional Shares (PISIX).  E/R: 0.85%.  This is an "enhanced" MSCI EAFE Index Fund (a.k.a., a "synthetic" index fund).  It buys MSCI EAFE index derivatives (e.g., futures, swaps, etc.) and invests the remaining cash in short to intermediate term bonds in an attempt to outperform the index.  While the expense ratio seems steep, keep in mind that this fund would be immune from foreign tax withholding, which makes its effective expense ratio lower by about 15% of the current yield, when comparing to the other funds here.

bulletDreyfus Intl Stock Index Fund (DIISX).  E/R: 0.6%.  This is an MSCI EAFE Index Fund. For more information, see the Vanguard Developed Markets Stock Index Fund description above.

Taxable Accounts

bulletVanguard Developed Markets Index Fund Admiral Shares (VTMGX).  E/R: 0.09%.  This fund is an FTSE Developed All Cap ex US Index Fund.  There is a $10,000 initial minimum purchase requirement.  The existence of an ETF share class should further help it become even more capital gains tax efficient.

bulletSchwab International Equity ETF (SCHF).  E/R: 0.07%.  This ETF tracks the FTSE Developed ex-US Index of large cap stocks in developed markets outside the US.  For more information on ETFs, see here.
 
bulletAQR TM International Momentum Style Fund (ATIMX).  E/R: 0.55%.  This fund invests in large non-US developed mkt momentum stocks (i.e., stocks that have done well over the past 12 months, excluding the most recent month).  Momentum has been shown to have both a positive risk premium and a negative correlation with the value premium.  Thus, momentum stocks are good diversifiers to value stocks.  As such, this fund is most appropriate for those who are using it to both get large cap non-US developed mkts exposure and to diversify value exposure elsewhere in their portfolio.  This fund manages to lesson short-term capital gain and dividend distributions.   For more information on momentum investing, see here.

bulletVanguard Developed Markets Index ETF (VEA).  E/R: 0.09%.  This ETF is a share class of the Vanguard Developed Markets Index Fund (VDVIX).  It attempts to track the FTSE Developed All Cap ex US Index.  While ETFs tend to be more tax efficient than conventional mutual funds, Vanguard ETFs are an exception ó these ETFs will be merely as tax efficient as their underlying conventional funds ó VDVIX (no more, no less), but with a lower expense ratio.  The existence of an ETF share class should further help it become even more capital gains tax efficient.  For more information on ETFs, see here.
 
bulletiShares MSCI International Developed Momentum Factor ETF (IMTM).  E/R: 0.30%.  This fund tracks the MSCI World ex USA Momentum Index of large- and mid- cap stocks in developed mkt countries outside the US which have been exhibiting strong risk-adjusted price momentum over the past 6- and 12- month periods.  We like that this fund has such a low expense ratio.  We don't like that the index's definition of momentum differs from that shown in the original Jegadeesh/Titman research as optimal.  For more information on ETFs, see here.  For more information on momentum investing, see here.
 
bulletiShares Core MSCI EAFE ETF (IEFA).  E/R: 0.08%.  This ETF tracks the MSCI EAFE Investable Market Index.  For more information on ETFs, see here.
 
bulletiShares Edge MSCI Minimum Volatility EAFE ETF (EFAV).  E/R: 0.20%.  This ETF tracks the MSCI EAFE Minimum Volatility Index.  For more information on ETFs, see here.
 
bulletFidelity Spartan International Index Fund - Fidelity Advantage Class (FSIVX).  E/R: 0.12%.  Minimum initial purchase: $10,000.  This fund tracks the MSCI EAFE Index of non-North America Large Cap stocks.  The fund charges a short-term redemption fee of 1.0% if you sell shares within 90 days of buying them.  This fee, paid directly to the fund, is intended to discourage market timing.
 
bulletVanguard Developed Markets Index Fund (VDVIX).  E/R: 0.20%.  This fund is an FTSE Developed All Cap ex US Index Fund.

bulletSPDR S&P World ex-US ETF (GWL).  E/R: 0.34%.  This ETF tracks the S&P Developed ex-US BMI Index of non-US developed market large cap stocks, including those in Canada (which are left out of the MSCI EAFE index).  As an ETF, this fund is expected to be more (capital gains) tax-efficient than the non-ETFs listed here.  For more information on ETFs, see here.

bulletiShares MSCI EAFE Index Fund (EFA).  E/R: 0.34%.  This ETF tracks the MSCI EAFE index.  As an ETF, this fund is expected to be more (capital gains) tax-efficient than the non-ETFs listed here.  For more information on ETFs, see here.

bulletPowerShares S&P International Developed Momentum Portfolio ETF (IDMO).  E/R: 0.26%.  This fund tracks the S&P Momentum Developed ex U.S. & South Korea LargeMidCap Index of non-US Developed-Markets large-cap stocks which have been exhibiting strong risk-adjusted price momentum over the past 12 months (excluding the most recent month).  This is a very new fund that will be somewhat illiquid for a while - until/unless it becomes larger.  We don't like that the index's definition of momentum differs from that shown in the original Jegadeesh/Titman research as optimal.  For more information on ETFs, see here.  For more information on momentum investing, see here.

bulletDFA Large Cap International Portfolio (DFALX).  E/R: 0.28%.  This fund invests in large-cap stocks (i.e., top 80% of market capitalization in each country) from developed markets outside of North America. This fundís target country allocation roughly conforms to the MSCI EAFE index. However, they donít necessarily buy stocks with the goal of replicating the index. It buys stocks using a sampling methodology, but it attempts to weight each stock according to its market capitalization (like the index does).  This methodology suggests that the fund's pre-expense returns ought to be similar to those of the MSCI EAFE Index. The fund attempts to add value by not having to slavishly follow the index Ė thus avoiding certain problems that all true index funds have regarding reconstitution.

bulletPowerShares BLDRS Developed Markets 100 ADR Index Fund (ADRD).  E/R: 0.30%.  This ETF tracks an index of large developed markets stocks which happen to have ADRs (American Depositary Receipts) trading on US exchanges.  This fund isn't very well diversified.  As an ETF, this fund is expected to be more (capital gains) tax-efficient than the non-ETFs listed here.  For more information on ETFs, see here.

bulletT.Rowe Price International Equity Index Fund (PIEQX).  E/R: 0.5%.  This fund tracks the FTSE Developed Ex. North America Index of large-cap foreign stocks.

bulletDreyfus Intl Stock Index Fund (DIISX).  E/R: 0.6%.  This is an MSCI EAFE Index Fund. For more information, see the Vanguard Developed Markets Stock Index Fund description above.

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This web page contains the current opinions of Eric E. Haas at the time it is written ó and such opinions are subject to change without notice.  This web page is intended to serve two purposes:

bulletTo educate the public; and
bulletTo provide disclosure of Mr. Haas' opinions to prospective clients.  We believe that prospective clients are well-served by being made aware of what they are buying ó and what they are buying is advice that is based on these opinions.

We believe the information provided here to be useful and accurate at the time it is written.  Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. 

No investor should invest solely on the basis of information listed here.  Before investing, it is important to consult each prospective investment's prospectus and consider both its risk/return characteristics and its effect on your overall portfolio.

This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice.  Where specific advice is necessary or appropriate, Altruist recommends consultation with a qualified tax adviser, CPA, financial planner, or investment adviser.  If you would like to discuss the rationale or support for any particular idea expressed on this web page, feel free to contact us.

 

 

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