Why Vanguard Is Banking On Small-Cap International ETF

To patch up a hole in its low-cost lineup of index-based funds, the Vanguard Group has filed to launch the Vanguard FTSE All-World ex-US Small Cap Index Fund.  It will be available in three versions - institutional, investors, and exchange traded fund (ETF) share classes.

This index enables Vanguard to offer its clients access to the most investable areas of what potentially could be a highly illiquid overseas marketplace.  It also enables the provider to remain competitive and try to grab attention and market share from small-cap international ETFs that are already established, such as the International Small Cap Dividend Fund (DLS), iShares MSCI EAFE Small-Cap Index Fund (SCZ), the SPDR S&P International Small-Cap Fund (GWX), and the FTSE Developed Ex-US Small Cap ETF (IFSM), states Murray Coleman of Index Universe.

Vanguard has a good advantage in the industry, in that, last month, it introduced its long-closed International Explorer Fund (VINEX), which had an expense ratio of 0.35%, making it the cheapest mutual fund in its category and making an actively managed fund the least expensive option for retail investors when matched against corresponding ETFs.

As for the Vanguard FTSE All-World ex-US Small-Cap Index Funds, investor shares will require at least $3,000 with an expense ratio of 0.60% and institutional shares will require $5 million and charge 0.35% in expenses.  As for the ETF version, the expense ratio will be 0.38%, making it competitive with BGI’s version, but more costly than IFSM.

This new index will provide a good alternative and open up options for traditional index mutual fund investors.

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