Finally: A Vanguard International Small-Cap Index Fund

At long last, Vanguard, one of the top mutual fund companies, is opening an international small-cap index fund. The Vanguard FTSE All-World ex-US Small-Cap Index Fund will come in three share classes: investor, institutional, and ETF and will track the FTSE Global Small Cap ex US Index, a market-cap-weighted small-cap index of stocks traded outside the U.S. The investor shares will carry an initial expense ratio of 0.6%, which is extremely low for the foreign small-cap fund market and require a $3,000 minimum investment. ETF shares are expected to carry an even lower 0.38% expense ratio. Non-ETF shares will also charge a 0.75% purchase and redemption fee to help offset transaction costs; however, these types of fees have historically been temporary in nature at Vanguard. Often, once the fund has grown large enough to achieve sufficient scale, these charges are eliminated. Similarly, the expense ratios of these funds are likely to drop over the next few years as operating costs are spread among more and more investors.

The Circle Is Complete

Proponents of modern portfolio theory have long bemoaned the lack of a low-cost international small-cap index fund in Vanguard’s line-up. Indeed, this was the last piece in the puzzle for many Vanguard investors. Every other asset class from large-cap to real estate to commodities has been accounted for through past launches, leaving only the small-cap international arena vacant. Sure, there was the Vanguard International Explorer Fund (VINEX) but it’s actively-managed and has more of a small-cap growth tilt. After the new international small-cap index fund opens, I will likely make a few changes in my Roth IRA asset allocation to include a stake in the new fund.