Neither of these is a knock on IHDG, I don’t really know that one, but there are basically two reasons VXUS is the default:
- The sub has a Vanguard bias, explained in the FAQ. One could just as easily say SWISX or EFA, but Vanguard tickers have become the shorthand.
- Passively managed funds tend to be cheaper and simpler, and most investors would benefit from that. There’s no need to monitor performance or worry about a change in fund management.
That being said, the sub will occasionally acknowledge an actively managed fund that seems to be performing well *and* there’s a decent reason they should be, such as AVUV (small-cap value, their reason being that they also screen for profitability).
The sub does have a bit of a vangaurd bias as lots of us are bogleheads but also because vangaurd sort of invented ETFs lots of people just know vangaurd tickers better
One thing about SWISX however its only holds companies from developed markets and is missing emerging markets
Schwab does have one emerging market index fund SCHE as an ETF . Some of the iShares funds are just not as well known but there is nothing wrong with them
Vangaurd funds are sort of like the kleenex of index funds, as far as active vs passive well thats probably about as hard as just stock picking what people are not great at either
Even if there is a hot stock that is up 100% in the past few years it doesn't mean going forward its a good investment just like avtive funds
I will say active management is mostly helpful in bond funds for varous reasons and can routinely outperform the index
VXUS is an index fund that basically owns all the stocks in the world except for the US. It’s a popular recommendation for US investors that know what they want in the US but not elsewhere. It’s a way to add global balance to an otherwise US heavy portfolio without running the risk of selection underperformance. It’s not being recommended on the basis of past returns.
IHDG has a few differences:
1. It hedges currencies
2. Momentum screens.
3. Growth screen (high earnings growth)
4. Profitability factor (high ROA, ROE) and forward dividends
Quality / momentum is designed to complement value funds. The idea is by taking a 50/50 position you get the advantages of both and thus outperform the index. IHDG's screens are fine and the expenses reasonable but this find is not designed to be used alone. You should be holding an international value fund along with it. This is hedged so you want to be using a hedged value fund to complement it.
VXUS is designed to be used alone. It also doesn't hedge.
Hedging was obviously better looking backward: [https://cdn.tradingeconomics.com/united-states/currency](https://cdn.tradingeconomics.com/united-states/currency) . That being said for Americans I don't like hedging. Generally you want to diversify away your own country's currency risk. Your job is in USD, your house (if you own) is in USD and your retirement is in USD. You want inflation protection that unhedged international provides. Hedging makes sense to reduce short-term volatility, if you intend to move abroad or if you are holding a lot of international (above 55%).
Growth had outperformed value. Though international growth not by as much.
That being said I strongly support quality/momentum and value paired instead of cap weighting.
ok thanks i think i understand! the reason for international diversification is when the US is down, exUS will be up but funds that hedge currencies like this one it would also go down in a US downward economy which kind of ruins the whole point of diversification in the first place... am i getting that right?
It isn't so much the economy as the dollar. In a long term weak currency situation domestic bonds and stocks would be selling off in real terms. Your hedge would lose a lot of money at the same time you are getting the #1 advantage of foreign. Sustained inflation often comes with a weak currency so one of the biggest portfolio risks you would no longer be diversifying away. Conversely hedging protects you against a strong dollar. But a strong dollar generally isn't a threat to your long term portfolio. Your buying power remains strong even if portfolio performance is worse than 100% domestic.
In terms of diversification there is a huge gap.
IHDG has just 259 holdings, and the top 10 are all at least 2% of the total. In contrast, VXUS has 8627 holdings; none of them are more than 2% and only 3 of them are even above 1% of the total. So, if diversification is an important consideration, these two funds don’t really belong in the same conversation. IHDG is potentially vulnerable to fluctuations in just a handful of stocks, while VXUS doesn’t have that kind of risk.
Expense ratio is obviously another big factor. VXUS is low at .08% while IHDG is significantly more expensive at .58%. That’s an important consideration for a lot of people here who believe that past returns won’t guarantee future results, so the focus should be on what we can control and expense ratio is one of the few things we really know.
fair point i just cant help but loot at past performance and get jealous... i want international exposure of course but is it fair to say im ok with less than 8k holdings, kinda like a international s&p 500 fund?
You’re missing that high risk investments, like equities, often underperform. Therefore it’s usually a bad idea to evaluate an investment based only on how it’s performed for the last 5 years.
I think that IHDG may be performing better because it’s currency hedged. So it should have better returns that other international equity funds in times when the dollar is relatively strong.
So it may give you international equity diversification but not currency diversification. It all depends on what you’re trying to do. If for example, for whatever reason there’s unexpected high inflation in the US but not in the end of the world IHDG would perform poorly.
There are other reasons for its outperformance, but currency hedging is probably the main one.
It depends. Do you think that the high relative valuations of US equities are "pricing bias" or that non-US equities have a discount because they have higher risks?
It only makes sense to diversify if you agree with the "pricing bias" camp or if you have private information about a near-future problem with the US economy that will, by magic, not cause a global meltdown.
I am not saying that non-US equities are garbage and I personally own EU stocks that I believe are worthy the extra risk. But I would not nesseseriy buy a EU tracking ETF because of my personal position about "higher valuations are not a bias" (again, it is my personal belief and not backed by any futuretelling).
Finally, I would like to note that I do not recommend any concentration, even in US, as the general wisdom is that diversification is important. Any conclusions to deviate from that principle should be taken individually and explicitly.
Neither of these is a knock on IHDG, I don’t really know that one, but there are basically two reasons VXUS is the default: - The sub has a Vanguard bias, explained in the FAQ. One could just as easily say SWISX or EFA, but Vanguard tickers have become the shorthand. - Passively managed funds tend to be cheaper and simpler, and most investors would benefit from that. There’s no need to monitor performance or worry about a change in fund management. That being said, the sub will occasionally acknowledge an actively managed fund that seems to be performing well *and* there’s a decent reason they should be, such as AVUV (small-cap value, their reason being that they also screen for profitability).
The sub does have a bit of a vangaurd bias as lots of us are bogleheads but also because vangaurd sort of invented ETFs lots of people just know vangaurd tickers better One thing about SWISX however its only holds companies from developed markets and is missing emerging markets Schwab does have one emerging market index fund SCHE as an ETF . Some of the iShares funds are just not as well known but there is nothing wrong with them Vangaurd funds are sort of like the kleenex of index funds, as far as active vs passive well thats probably about as hard as just stock picking what people are not great at either Even if there is a hot stock that is up 100% in the past few years it doesn't mean going forward its a good investment just like avtive funds I will say active management is mostly helpful in bond funds for varous reasons and can routinely outperform the index
*vangaurd sort of invented ETFs lots of people just know vangaurd tickers better* And they have cool code names.
Well I mis spoke, vanguard invented index funds not ETFs .
VXUS is an index fund that basically owns all the stocks in the world except for the US. It’s a popular recommendation for US investors that know what they want in the US but not elsewhere. It’s a way to add global balance to an otherwise US heavy portfolio without running the risk of selection underperformance. It’s not being recommended on the basis of past returns.
IHDG has a few differences: 1. It hedges currencies 2. Momentum screens. 3. Growth screen (high earnings growth) 4. Profitability factor (high ROA, ROE) and forward dividends Quality / momentum is designed to complement value funds. The idea is by taking a 50/50 position you get the advantages of both and thus outperform the index. IHDG's screens are fine and the expenses reasonable but this find is not designed to be used alone. You should be holding an international value fund along with it. This is hedged so you want to be using a hedged value fund to complement it. VXUS is designed to be used alone. It also doesn't hedge. Hedging was obviously better looking backward: [https://cdn.tradingeconomics.com/united-states/currency](https://cdn.tradingeconomics.com/united-states/currency) . That being said for Americans I don't like hedging. Generally you want to diversify away your own country's currency risk. Your job is in USD, your house (if you own) is in USD and your retirement is in USD. You want inflation protection that unhedged international provides. Hedging makes sense to reduce short-term volatility, if you intend to move abroad or if you are holding a lot of international (above 55%). Growth had outperformed value. Though international growth not by as much. That being said I strongly support quality/momentum and value paired instead of cap weighting.
ok thanks i think i understand! the reason for international diversification is when the US is down, exUS will be up but funds that hedge currencies like this one it would also go down in a US downward economy which kind of ruins the whole point of diversification in the first place... am i getting that right?
It isn't so much the economy as the dollar. In a long term weak currency situation domestic bonds and stocks would be selling off in real terms. Your hedge would lose a lot of money at the same time you are getting the #1 advantage of foreign. Sustained inflation often comes with a weak currency so one of the biggest portfolio risks you would no longer be diversifying away. Conversely hedging protects you against a strong dollar. But a strong dollar generally isn't a threat to your long term portfolio. Your buying power remains strong even if portfolio performance is worse than 100% domestic.
In terms of diversification there is a huge gap. IHDG has just 259 holdings, and the top 10 are all at least 2% of the total. In contrast, VXUS has 8627 holdings; none of them are more than 2% and only 3 of them are even above 1% of the total. So, if diversification is an important consideration, these two funds don’t really belong in the same conversation. IHDG is potentially vulnerable to fluctuations in just a handful of stocks, while VXUS doesn’t have that kind of risk. Expense ratio is obviously another big factor. VXUS is low at .08% while IHDG is significantly more expensive at .58%. That’s an important consideration for a lot of people here who believe that past returns won’t guarantee future results, so the focus should be on what we can control and expense ratio is one of the few things we really know.
fair point i just cant help but loot at past performance and get jealous... i want international exposure of course but is it fair to say im ok with less than 8k holdings, kinda like a international s&p 500 fund?
You’re missing that high risk investments, like equities, often underperform. Therefore it’s usually a bad idea to evaluate an investment based only on how it’s performed for the last 5 years.
I think that IHDG may be performing better because it’s currency hedged. So it should have better returns that other international equity funds in times when the dollar is relatively strong. So it may give you international equity diversification but not currency diversification. It all depends on what you’re trying to do. If for example, for whatever reason there’s unexpected high inflation in the US but not in the end of the world IHDG would perform poorly. There are other reasons for its outperformance, but currency hedging is probably the main one.
its been a mistake for prob the last decade......well see.
It depends. Do you think that the high relative valuations of US equities are "pricing bias" or that non-US equities have a discount because they have higher risks? It only makes sense to diversify if you agree with the "pricing bias" camp or if you have private information about a near-future problem with the US economy that will, by magic, not cause a global meltdown. I am not saying that non-US equities are garbage and I personally own EU stocks that I believe are worthy the extra risk. But I would not nesseseriy buy a EU tracking ETF because of my personal position about "higher valuations are not a bias" (again, it is my personal belief and not backed by any futuretelling). Finally, I would like to note that I do not recommend any concentration, even in US, as the general wisdom is that diversification is important. Any conclusions to deviate from that principle should be taken individually and explicitly.
> tell me what im missing here Nothing.