International assets are a crucial part of any well-diversified investment portfolio. Here we’ll look at the best international ETFs for both stocks and bonds across developed and emerging markets.
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Contents
Introduction – Why International Stocks and Bonds?
International stocks inarguably offer a diversification benefit to a diversified investment portfolio by not being perfectly correlated to the U.S. market, thereby lowering portfolio volatility and risk. That is, international stocks do not move in perfect lockstep with U.S. stocks.
At their global market weight, U.S. stocks comprise only about 50% of the global stock market. Top target date funds now allocate over 30% of equities positions to ex-US stocks. Moreover, considering the historical performance of emerging markets, excluding international stocks may mean missing out on great investment opportunities. Also consider that international markets contain most of the largest automotive, telecommunication, and electronics companies.
During the period 1970 to 2008, an equity portfolio of 80% U.S. stocks and 20% international stocks had higher general and risk-adjusted returns than a 100% U.S. stock portfolio. Specifically, international stocks outperformed the U.S. in the years 1986-1988, 1993, 1999, 2002-2007, 2012, and 2017.
Similarly, the evidence seems to show that international bonds may offer a small diversification benefit in terms of credit risk on the fixed income side due to their low correlation with both U.S. stocks and U.S. bonds.
Below we’ll check out some of the best international ETFs across both stocks and bonds to reduce portfolio risk alongside U.S. stocks.
The 7 Best International ETFs
Below are the 7 best broad international ETFs, segmented by asset type.
Best International Stock ETFs
Here we’ll look at the best international stock ETFs:
VXUS – Vanguard Total International Stock ETF
The Vanguard Total International Stock ETF (VXUS) is the most popular broad international stock ETF, and for good reason. The fund has a very low expense ratio for this space at only 0.08%, providing affordable access to the total international stock market. This ETF seeks to track the FTSE Global All Cap ex US Index and has over $420 billion in assets under management.
VEU – Vanguard Consumer Staples ETF
Similar to VXUS above is the Vanguard FTSE All-World ex-US ETF (VEU). The fund seeks to track the FTSE All-World ex US Index and also has an expense ratio of 0.08%. Both VEU and VXUS are highly liquid, broad international stock ETFs. Their performance has been nearly identical historically. VXUS is arguably more diversified with roughly 7,500 holdings compared to 3,500 for VEU.
IXUS – iShares Core MSCI Total International Stock ETF
The iShares Core MSCI Total International Stock ETF (IXUS) is another broadly diversified international stock ETF. The fund seeks to track the MSCI ACWI ex USA IMI Index and has over $20 billion assets and 4,300 holdings. This ETF is slightly more expensive than the above two with an expense ratio of 0.09%.
The Vanguard Intermediate-Term Treasury ETF (VGIT) roughly matches the average maturity of the total U.S. treasury bond market, and is a one-size-fits-all bond duration between short and long, suitable for any investor. This ETF has over $10 billion in assets and a low expense ratio of only 0.05%.
VEA – Vanguard FTSE Developed Markets ETF
Investors seeking to only invest in developed markets will enjoy the Vanguard FTSE Developed Markets ETF (VEA). This fund seeks to track the FTSE Developed All Cap ex US Index. It has over $120 billion in assets, over 4,010 holdings, and an expense ratio of only 0.05%.
The Aberdeen Standard Physical Gold Shares ETF (SGOL) is physically backed by gold bullion. This ETF tracks the spot price of gold bullion and is the most affordable gold fund out there with an expense ratio of 0.17%.
Best International Bond ETFs
Below we’ll check out a few of the best international bond ETFs.
BNDX – Vanguard Total International Bond ETF
The Vanguard Total International Bond ETF (BNDX) provides broad, USD-hedged diversification across the entire foreign bond market. The fund has over $150 billion in assets, an average maturity of about 10 years, and an expense ratio of 0.08%. This ETF seeks to track the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged).
IAGG – iShares Core International Aggregate Bond ETF
The iShares Core International Aggregate Bond ETF (IAGG) is a broad international bond ETF from iShares. The fund seeks to track the Bloomberg Barclays Global Aggregate ex USD 10% Issuer Capped (Hedged) Index. This ETF is roughly equivalent to BNDX but with a slightly shorter duration and average maturity. The expense ratio for this ETF is 0.09%.
IGOV – iShares International Treasury Bond ETF
Those seeking exposure to only foreign treasury bonds will appreciate the iShares International Treasury Bond ETF (IGOV). The fund tracks the FTSE World Government Bond Index and has an expense ratio of 0.35%. Its average maturity is about 11 years.
Where To Buy These International ETFs
All the above international ETFs are available at M1 Finance. M1 has zero trade commissions and zero account fees, and offers fractional shares, dynamic rebalancing, intuitive pie visualization, and a sleek, user-friendly interface and mobile app. I wrote a comprehensive review of M1 Finance here.
Disclosures: I am long VXUS.
Interested in more Lazy Portfolios? See the full list here.
Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or transact in any of the products mentioned. Do your own due diligence. Read my lengthier disclaimer here.
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