The Vanguard FTSE Developed Markets ETF (VEA) Offers Broader Diversification Than the SPDR Portfolio Developed World ex-US ETF (SPDW)

The article compares two prominent developed international equity ETFs excluding the U.S., the SPDR Portfolio Developed World ex-US ETF (SPDW) and the Vanguard FTSE Developed Markets ETF (VEA), both featuring a 0.03% expense ratio. While VEA offers broader diversification with more holdings and significantly larger assets under management ($250.8B vs. $32.0B), alongside a slightly higher dividend yield, both funds delivered nearly identical 10-year total returns (VEA 115.6%, SPDW 114.4%), notably underperforming the S&P 500's 291% return over the same period, highlighting the relative underperformance of developed ex-US markets.

Analysis

Both the SPDR Portfolio Developed World ex-US ETF (SPDW) and the Vanguard FTSE Developed Markets ETF (VEA) offer broad exposure to developed international equities excluding the U.S., sharing an identical 0.03% expense ratio. VEA, however, provides broader diversification with approximately 3,873 holdings compared to SPDW's 2,405, and manages a significantly larger $250.8 billion in assets under management versus SPDW's $32.0 billion. Additionally, VEA offers a slightly higher dividend yield of 2.7% compared to SPDW's 2.6%.

Performance over the past decade reveals nearly identical total returns, with VEA delivering 115.6% and SPDW 114.4%. Over a five-year period, VEA showed a marginally better growth of $1,000 ($1,555 vs. $1,546) and a slightly lower maximum drawdown of -29.71% compared to SPDW's -30.20%. The reported beta for VEA (0.08) suggests significantly lower volatility relative to the S&P 500 than SPDW (1.01), a point that warrants further scrutiny.

Crucially, both developed international ETFs significantly underperformed the Vanguard 500 Index Fund ETF (VOO), which achieved a 291% total return over the same ten-year period. This stark difference highlights a prolonged period of relative underperformance for developed ex-US markets compared to the U.S. equity market. The article characterizes this performance as "disappointing," underscoring the challenges in this segment.

Key Decisions for Investors

• Investors seeking broader diversification and a slightly higher dividend yield in developed ex-US markets may prefer VEA due to its larger AUM and higher stock count
• Acknowledge the significant historical underperformance of developed ex-US markets relative to the S&P 500 over the past decade when allocating capital to these ETFs
• Carefully consider the reported low beta of VEA as a potential volatility dampener, but assess its practical impact within a broader portfolio context
• Strategically evaluate the allocation to developed international equities, weighing their historical returns against future growth prospects compared to domestic markets