Vanguard International Value Fund (VTRIX) Review

Vanguard International Value fund invests in ex-US international companies from around the world that have temporarily gone are out of favor as investors have diverted their attention to growth stocks. This fund invests in small, mid, and large-capitalization companies. Because it invests in foreign stocks, the fund is subject to both currency risk and country risk. This fund is an actively managed fund and is managed by multiple fund managers. You should hold this fund as a component of a well diversified stock portfolio.

Composition

Vanguard International Value Fund tracks the Spliced International Index. It invests in 171 companies in Developed and Emerging markets. Europe comprises of 53% of the holdings, Asia-Pacific region comprises of 30% and 12% is devoted to companies in the Emerging markets. The top 10 holdings make up for approximately 16% of the investments.

Performance

Because of the great recession of 2008-2009 and due to the Euro Zone crisis over the last three years, lots of companies in Europe went out of favor. Vanguard International Value fund has performed exceptionally well over the last year 2012-2013 period as Europe has begun to heal. The fund has returned 23.90% over the past year, 7.70% over the past three years, 1.10% over the past five years, and 9.40% over the past decade as of 8/9/2013. I personally have no doubt that if you dollar-cost average your investment over a longer horizon, the ups-and-downs will smooth out to historical stock market performance return (8-10%).

Risks

Investing in a foreign market fund, in general, and Vanguard International Value Fund, in specific, is not without risks. The fund’s exposure to in foreign stock markets can be riskier than U.S. stock investments. Also, the world events such as the Euro Zone Crisis of the past three years may adversely affect the value of securities issued by companies in foreign countries or regions. Finally, being an active mutual fund, this fund presents manager risk as well. 

Expenses

The annual expense ratio of the Investor class shares ($3,000 minimum) of the Vanguard International Value Fund is just 0.41%. There is no equivalent Admiral Fund. So for every $10,000 invested for 10 years, Vanguard charges a total of just $953 to manage this basket of stocks. Even though this expense ratio is a bit higher than Index funds from Vanguard, it is still lower than the category average of 1.36% of mutual funds offered by other firms.

Final Thoughts

Vanguard International Value Fund provides a great way for long-term, buy and hold investors to diversify their international portion of their portfolio into value stocks. This fund is only offered as an active mutual fund and not an index fund.

Like any international fund, this fund is volatile. But, it also represents upside potential as the fund invests in undervalued stocks. Since stocks of companies outside the US represents 75% of the total world markets, it is good opportunity to capture those market slices through this fund. Since the fund is volatile, you may want to keep a small to moderate amount of asset allocation to this fund. As always, past performance is not a guarantee of the future returns.