VTWAX: Vanguard Strikes Out Across the World, but Is It a Good Investment?
VTWAX executive summary
- VTWAX is a mutual fund offered by Vanguard.
- It has a minimum investment of $3K and an expense ratio of 0.10%.
- Seeks to track the FTSE Global All Cap Index, meaning it’s seeking to invest in the total world equity market.
- Launched in 2019 and performance to date has been moderate (annualized return of 8.73%, compared to the S&P500’s of 12.05% over the same time period) so far, but it is a young fund, so time will tell (note: we decided a backtest of the strategy was beyond the scope of this article).
- Investors contemplating using this fund as a diversification away from the United States may want to think twice. At writing, 62% of weighted assets in the fund were invested in North American equities like Apple, Microsoft, and Amazon.
VTWAX is a push-button option to invest in the ‘total world’ of equities
VTWAX’s full name is “Vanguard Total World Stock Index Fund Admiral Shares” and it seeks to track the FTSE Global All Cap Index. It tracks it quite closely with a recent Beta (over the past 36 months) of 1.01. Despite claiming to invest in all types of equities, around 9,000 when we checked, the fund ends up weighted towards a large blend.
The idea behind this fund is that investors, can with one fund, just invest in the entire world of equities. In the past, investors would have had to invest in many funds and/or individual stocks to achieve this goal. This is a little different than other Vanguard international funds, like VEU and VXUS, which seek to invest in the total world … excluding the United States.
It recently had ~$33B of net assets and only 40% were invested outside of North America.
VTWAX’s performance has been moderate over its first few years of existence
Vanguard only launched VTWAX in 2019, so there’s not much historical performance data to evaluate yet. To date, the annualized return has been a little better than ~8%. But inflation over the same time was almost 4%, so in real dollars, investors were only making around 4%. Not terrible, but not too exciting either.
Its standard deviation to date has averaged almost ~20%, with a Sharpe ratio of 0.48 and a Sortino ratio of 0.70.
The S&P500 performed better over the same period
While the S&P500 is a completely fair benchmark to compare against, we like to consider every potential investment against it. Comparing since VTWAX’s inception, and using VOO as a proxy, we see that the S&P500 was a substantially better investment along every key metric.
- Sharpe ratio of 0.62 to VTWAX’s 0.48
- Sortino ratio of 0.95 to VTWAX’s 0.70
- Annualized return of ~12% to VTWAX’s ~8%
- Standard deviation of ~19.5% to VTWAX’s ~19.1%
This is a little disappointing since, as we scan through VTWAX’s largest holdings, it feels like we’re just looking at the S&P 500! So it feels a bit like Vanguard is adding thousands of international stocks to an S&P500 index fund tracker for the sake of diversification, and getting a third worse performance for the same standard deviation. Perhaps the diversification will pay off over a longer time horizon but we’re skeptical.
Focus on: why not invest in VT instead?
Vanguard offers the same fund as an ETF (as opposed to the mutual fund that VTWAX is), and the minimum investment is one share. At writing, that’s only around $90.
VT invests in the exact same securities as VTWAX, but only has a 0.7% expense ratio. So for investors looking for a total world stocks index fund, VT could be the way to go.
You can see below that they both track nearly perfectly together.VT has been around longer, since 2008, though, so its performance might offer some clues about VTWAX’s future.
It’s only returned an annualized ~8%, compared to the S&P’s ~13% over the same period, which feels like the same moderate performance we’ve seen from VTWAX so far.
VTWAX: basic stats
Including VT side-by-side, since they are nearly identical.
Last word ... are we buying VTWAX?
We’re not really convinced that this fund, which seems to be trying to provide ex US diversification is really doing so. That fact combined with the middling performance will have us looking elsewhere for international equity exposure.
Cody is the founder and owner of Personal Finance Guru. His day job is as a management consultant at one of the Top 3 firms (think Mckinsey, Bain), where he advises Fortune 500 C-suite clients on their most important and pressing business problems. He completed his business education at Harvard Business School.
After seeing the lack of personal finance education for regular people, Cody started the website with the mission to provide everyone access to information that will help them achieve their financial goals.
Cody approaches personal finance from a maximalist perspective, shunning typical advice around simply not buying a cup of coffee instead of more effective methods like investing in yourself to quickly grow your income.
He believes in saving money and investing for the future, but he also knows that you need to enjoy life today. That’s why Cody approaches money with a sense of humor and a positive attitude. He knows that if you’re not having fun while you’re growing your wealth, then what’s the point?
Cody approaches life with the same gusto that he brings to personal finance. He loves to travel and experience new cultures, and he is an avid reader and learner. He also enjoys playing sports (especially tennis) and spending time with his family and friends.