SCHF vs VXUS - Which Ex-US ETF is Better Overall?
In this article, we will be talking about the differences between two ex-U.S. ETFs, namely VXUS and SCHF. First, we will give you some background information on the similarities and differences between each fund as well as some of their unique advantages and disadvantages.
To give a brief overview to start: Both SCHF and VXUS are designed to hold a portfolio of international equities rather than just American stocks – they’re meant to help investors gain exposure to global markets and help diversify away from what most people generally have — a portfolio heavily overweighted to US stocks.
Overall, we’d opt to have a large amount of SCHF and a smaller amount of VXUS, This is mainly due to SCHF having a better (lower) expense ratio and slightly higher annual return historically.
What Similarities do SCHF and VXUS have?
- Both SCHF and VXUS focus exclusively on international (ex-US) stocks.
- Their industry exposure is nearly identical, with VXUS having about 1% more tech than SCHF and SCHF having about 1% more industrial exposure.
- They have nearly identical returns, within 0.2% of one another for every period we tested (last 5 years, last 10 years, etc)
What differences do SCHF and VXUS Have?
- SCHF is more Asia-Centric with heavy concentrations in East-Asia (especially Japan) while VXUS has more exposure to Europe
- VXUS has a total fund size of 381.83B while SCHF has a total fund size of about 25.98B.
- VXUS has a higher expense ratio of 0.08% versus SCHF which has a 0.06% expense ratio
- VXUS has significantly more holdings coming in at 7420 stocks while SCHF only holds a total of 1532 stocks – this drastic difference is because VXUS buys very small amounts of tons of small-cap international stocks, while SCHF sticks to large-cap stocks.
SCHF vs VXUS - Which Is the Better Investment?
To get to the point – SCHF is the superior fund due to its lower fees and equal to slightly better-annualized return, but I’d argue that the difference between them isn’t too significant, so if you’ve already purchased VXUS, especially if you have significant gains on it, it’s likely not worth the tax bother of selling VXUS simply to swap it out for SCHF or another similar fund.
If you are looking for another alternative ex-US Internationally-focused ETF then you could also check out VEU, although I prefer these two ETF’s to it. You can read our comparison of VXUS versus VEU by clicking here, but to put it simply: VXUS has a slightly better historic return, but isn’t significantly different than VXUS – it’s more like SCHF but with higher fees, so I’d skip it in favor of either VXUS or SCHF.
Another thing to consider is what if Vanguard or Schwab goes bankrupt and the ETF’s are forced to close down – if you consider this to be a real risk I’d recommend reading up on ETF bankruptcy and what it entails (tax consequences). Because of this it might be wise to spread the risk across many issuers, for example having funds from both Schwab as well as Vanguard, rather than buying only one fund.
What Other Ex-US ETF's Are Worth Considering?
I’d recommend checking out either iShares or SDPR’s offerings depending on what you’re looking for, although I generally prefer Schwab and Vanguard when it comes to broad ETF’s – although being honest there’s little difference between Vanguard and Ishares ETFs; generally the like-kind ETFs hold like-kind stocks/assets.
I’d say consider looking at Ex-US ETF’s that are NOT total-market ETFs, but instead ones that target specific countries such as Ticker: EWU, which is a total UK-focused ETF, or EFNL which is a total Finnish ETF.
Personally I opt for south-east Asian countries ETFs as well as some South-American ETFs, as I believe they’re where the most growth and opportunities are outside the US. A personal favorite of mine is THD – Ishares Thailand-focused ETF.
How Much of Your Portfolio Should Be In International Stocks?
I, unfortunately, am not an all-powerful being who knows how much international exposure you need in your portfolio, nor am I an investment advisor, and thus I can’t give you investment advice.
For me I aim to have a lot of international exposure, as I do not live in the United States full-time anymore – the way I see it is that if I live in Thailand a lot, which I have in the past and plan to in the future, I should have stocks and earnings from there – so even though I am not a Thai National I feel like I should have some exposure to the Thai market, as when I live there most of my expenses will be in Thai Baht.
Should You Buy Individual Stocks from Abroad?
Once again, I am not an all-powerful being who knows your risk tolerance or in fact anything about you – nor am I your financial advisor and thus I can’t give you investment advice.
Buying individual stocks directly from a foreign country can be a good idea, or it can be a terrible idea. Personally I do buy some individual foreign stocks, but generally the companies release much less information, aren’t as transparent, and as a foreigner you rarely will truly understand the market in the foreign country, and thus have no real edge in picking stocks — so generally it’s a bad idea for most people.