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

The article compares the SPDR Portfolio Developed World ex-US ETF (SPDW) and the Vanguard FTSE Developed Markets ETF (VEA), highlighting their identical 0.03% expense ratios and similar sector allocations to developed international equities. Despite VEA's significantly larger AUM and broader holdings, both ETFs delivered nearly identical 10-year total returns of approximately 115%. This performance notably underperformed the 291% total return of the Vanguard 500 Index Fund ETF over the same period, underscoring a substantial divergence in returns between developed international and U.S. equity markets over the last decade.

Analysis

The SPDR Portfolio Developed World ex-US ETF (SPDW) and Vanguard FTSE Developed Markets ETF (VEA) both provide broad exposure to developed international equities, excluding the U.S., with identical 0.03% expense ratios. While VEA boasts a significantly larger AUM of $250.8 billion and a broader portfolio of 3,873 stocks compared to SPDW's $32.0 billion AUM and 2,405 holdings, their sector allocations are nearly identical, with Financial Services, Industrials, and Technology as primary exposures.

Despite tracking different indices, the 10-year total returns for both ETFs were remarkably similar, with VEA at 115.6% and SPDW at 114.4%. Over the past five years, VEA slightly outperformed SPDW in growth of $1,000 ($1,555 vs $1,546) and exhibited a marginally lower maximum drawdown (-29.71% vs -30.20%). VEA also offers a slightly higher dividend yield of 2.7% versus SPDW's 2.6%.

Crucially, both international developed market ETFs significantly underperformed the U.S. market over the last decade, with the Vanguard 500 Index Fund ETF (VOO) delivering a 291% total return. This substantial divergence highlights a prolonged period of U.S. equity outperformance relative to developed international markets, despite the international funds' broad diversification and low costs.

Key Decisions for Investors

• Re-evaluate current portfolio allocations to developed international equities, acknowledging their significant underperformance relative to U.S. markets over the last decade.
• For new allocations to developed international markets, either VEA or SPDW offers cost-effective, broadly diversified exposure, with VEA providing marginally broader holdings and a slightly higher dividend yield.
• Monitor global macroeconomic shifts and relative market strength, as a sustained reversal in U.S. outperformance could alter the strategic importance of developed international market exposure.