Executive summary: Vanguard’s new international growth and value ETFs expand your options. But style tilts require conviction and patience. This analysis examines whether growth or value makes sense overseas—and whether index or active funds are the better vehicle.
It’s been three decades since Vanguard gave investors easy, low-cost index funds to tilt their portfolios toward U.S. growth or value stocks.
With the upcoming launch of Developed Markets ex-U.S. Growth Index ETF and Developed Markets ex-U.S. Value Index ETF—scheduled for March 23—Vanguard investors will finally have the same choice overseas.
Investors face two key questions:
- Should you tilt your foreign stock holdings toward growth or value?
- And if so, are these new ETFs the best way to do it—or are you better off sticking with one of Vanguard’s legacy actively managed funds, International Growth (VWIGX) or International Value (VTRIX)?
The debut of the new ETFs doesn’t require action. It simply creates new options. So, let’s tackle each question in turn.
Meet the New ETFs
But first, to make sure we are all on the same page, let me quickly introduce the new funds.
The two new ETFs will track Standard & Poor’s (S&P) indexes of large- and mid-sized stocks in developed markets outside the U.S., divided into growth and value segments.
That’s a departure from Vanguard’s flagship international index funds—like Developed Markets ETF (VEA)—which track FTSE indexes. Does this difference really matter to us investors? No. But it’s an odd inconsistency within Vanguard’s foreign stock lineup.
What these funds won’t offer is a mutual fund share class. They will be ETFs only. So, if you prefer the simplicity of traditional mutual funds—or can’t buy ETFs in your account—these new tools won’t be available to you.
Housekeeping note: I use MSCI EAFE Growth and Value indexes for long-term style comparisons. When evaluating the active funds, I switch to MSCI ACWI ex-U.S. indexes, which include emerging markets. That shortens the history but better reflects the managers’ true opportunity set.
Step 1: Growth or Value Overseas?
Do you want to own growth or value overseas?
If you ask the academics, they’ll tell you that value stocks should outperform. And over the past three decades, MSCI’s EAFE Value Index has indeed beaten its growth counterpart—6.5% per year versus 5.2%.
But the relative performance chart below tells a more nuanced story. In the chart, the line rises when the MSCI EAFE Growth index outperforms the MSCI EAFE Value index.