The Vanguard FTSE All-World ex-US Index Fund ETF (VEU) presents a gateway to global investment opportunities beyond the borders of the United States.
This ETF aims to mirror the performance of a benchmark index, the FTSE All-World ex U.S. Index, offering investors a glimpse into the returns generated by stocks of companies situated in both developed and emerging markets worldwide. With a diversified portfolio spanning approximately 2,200 large- and mid-capitalization stocks across 46 countries, VEU provides exposure to a wide array of sectors and regions, making it a compelling choice for those seeking international diversification.
As of January 31, 2024, VEU boasts impressive total net assets amounting to $52.73 billion, underscoring its substantial presence in the market. The ETF’s solid performance in 2023, where it notched up nearly a 12% gain, sets a promising tone for its trajectory in the new year. Starting 2024 on a positive note, with a 50 basis points increase, VEU demonstrates resilience and potential amid evolving market dynamics. As investors increasingly recognize the importance of diversification and global exposure in their portfolios, VEU stands out as a reliable vehicle for tapping into international markets and seizing opportunities beyond U.S. boundaries.
Technical
The Vanguard FTSE All-World ex-US Index Fund ETF has been showcasing a resilient uptrend, with its price consistently trading above the 100-day moving average, signifying bullish momentum in the market. This uptrend was further validated by a breakout above a descending channel in November 2023, affirming the strength of the bullish trend.
During this period, a support level emerged at $49.47, coinciding with oversold RSI conditions, initiating a rebound in prices. However, at $56.63, upside momentum encountered resistance amid overbought RSI conditions. This level holds significance as it previously acted as a resistance point in July 2023, indicating an imbalance between supply and demand, favouring sellers.
With overbought RSI conditions signalling a possible reversal, investors could monitor the 100-day moving average, which could serve as a point of interest for bargain hunters in case of a downturn. Conversely, a high volume breakout above $56.63 could indicate renewed upside interest, with the $58.82 level emerging as a potential target for upward movement. While the current price action suggests a potential reversal, a breakout above the resistance the levels could reignite bullish sentiment.
Fundamental
The Vanguard FTSE All-World ex-US Index Fund ETF (VEU) presents investors with a well-rounded and diversified portfolio spanning ten sectors. Notably, the ETF’s allocation is concentrated in key sectors, with Financial Services leading the pack at 20.29%, followed by Industrials at 14.03%, Technology at 12.44%, and Consumer Cyclical at 10.80%. Collectively, these four sectors account for just over half of the ETF’s allocation.
This sectoral diversification ensures that investors have exposure to a wide array of industries, reducing concentration risk and enhancing portfolio resilience. Financial Services, with its substantial allocation, reflects the importance of banking and financial institutions in global markets. Meanwhile, the Industrials sector represents companies involved in manufacturing, infrastructure, and transportation. The significant presence of the Technology sector underscores the growing importance of innovation and digitalization in today’s global economy. Additionally, the allocation to the Consumer Cyclical highlights the significance of consumer spending and economic activity.
Source: Trive – Financial Times, Nkosilathi Dube
The Vanguard FTSE All-World ex-US Index Fund ETF exhibits a significant geographical focus, with its allocation primarily concentrated in Greater Asia and Greater Europe. Greater Asia accounts for the largest share of the ETF’s allocation, comprising 45.28%, followed closely by Greater Europe at 39.48%. Together, these two regions constitute the majority of the ETF’s portfolio, reflecting its exposure to diverse economies across Asia and Europe.
Delving deeper into the regional breakdown, the Eurozone stands out with a substantial allocation of 20.10%, highlighting the importance of European markets within the ETF. Japan also commands a significant portion, representing 15.78% of the total allocation, further emphasizing the ETF’s exposure to Asian markets. Emerging Asia and Europe (excluding the Eurozone), contribute significantly to the ETF’s allocation, with 14.12% and 10.96%, respectively. These regions offer exposure to rapidly growing economies and diverse market opportunities outside of the traditional developed markets. Moreover, Developed Asia, with a 10.19% allocation, underscores the ETF’s focus on established markets in the region, providing investors with exposure to stable and mature economies.
Source: Trive – Financial Times, Nkosilathi Dube
The VEU ETF boasts a well-diversified portfolio, with its top 10 holdings collectively representing 10% of the ETF’s allocation. These holdings, spread across Europe and Asia, mirror the ETF’s broad international exposure.
Among the noteworthy holdings within the top 10 are leading companies from various sectors and regions. Novo Nordisk A/S, with a 1.21% allocation, exemplifies the ETF’s investment in the healthcare sector, offering exposure to the pharmaceutical and biotechnology industries. Similarly, Nestle SA, representing 1.16% of the allocation, underscores the ETF’s investment in the consumer goods sector, with a focus on food and beverage products. Taiwan Semiconductor Manufacturing Co Ltd, with a 1.13% allocation, highlights the ETF’s exposure to the technology sector and the semiconductor industry, reflecting the importance of Asian markets within VEU’s portfolio.
Source: Trive – Financial Times, Nkosilathi Dube
Sector Outlooks
The performance of sectors within the Vanguard FTSE All-World ex-US Index Fund ETF reflects broader market trends. Financial services benefited from global interest rate increases, boosting net interest earnings for major banks. Industrials saw gains post-pandemic, although they face risks from potential global demand slowdowns. Technology stocks surged, driven by excitement around generative Artificial Intelligence and increased chip demand. Stable wage growth and labour markets in the developed world supported robust retail sales in consumer cyclicals.
Although the VEU ETF has experienced negative returns over the past three years (-9.66%), it has shown signs of recovery since hitting a low point in October 2022. This turnaround coincides with positive returns seen in indices like the Nikkei 225 (29.96%) and Euro Stoxx 50 (28.95%), particularly stemming from the lows of October 2022. Given that VEU is heavily exposed to Japanese and European equities, its performance reflects the upward trajectory of these indices.
Moreover, the decrease in inflation since its peak in 2022 suggests a potential future reduction in interest rates. Lower interest rates typically stimulate economic growth by decreasing borrowing costs, which can boost investment and spending. This scenario often translates to higher stock prices as companies benefit from improved earnings prospects. Therefore, the combination of a rebounding VEU ETF and potential interest rate cuts could provide tailwinds for global stocks, particularly those within European and Japanese markets.
Source: Trive – Koyfin, Nkosilathi Dube
Investing in the VEU entails several risks. Stock market risk is inherent due to potential declines in overall stock prices, exacerbated by foreign stock volatility and liquidity issues. Country/regional risk arises from events affecting foreign securities, with emerging markets posing higher volatility and liquidity challenges. Additionally, currency risk exposes investors to potential losses from unfavourable currency exchange rate changes. These risks underscore the importance of thorough assessment and diversification strategies when considering VEU as an investment option.
Summary
With a diversified portfolio spanning global markets, VEU offers exposure to diverse sectors and regions, providing resilience amid market fluctuations. Despite recent challenges, its rebound from October 2022 lows and potential tailwinds from interest rate cuts signal possible room for the upside.
Sources: Vanguard, Financial Times, Koyfin, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
Disclaimer: Trive South Africa (Pty) Ltd (hereinafter referred to as “Trive SA”), with registration number 2005/011130/07, is an authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act, 37 of 2002. Trive SA is authorised and regulated by the South African Financial Sector Conduct Authority (FSCA) and holds FSP number 27231. Trive Financial Services Ltd (hereinafter referred to as “Trive MU”) holds an Investment Dealer (Full-Service Dealer, excluding Underwriting) Licence with licence number GB21026295 pursuant to section 29 of the Securities Act 2005, Rule 4 of the Securities Rules 2007, and the Financial Services Rules 2008. Trive MU is authorized and regulated by the Mauritius Financial Services Commission (FSC) and holds Global Business Licence number GB21026295 under Section 72(6) of the Financial Services Act. Trive SA and Trive MU are collectively known and referred to as “Trive Africa”.
Market and economic conditions are subject to sudden change which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. Trive Africa and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered. Please consider the risks involved before you trade or invest. All trades on the Trive Africa platform are subject to the legal terms and conditions to which you agree to be bound. Brand Logos are owned by the respective companies and not by Trive Africa. The use of a company’s brand logo does not represent an endorsement of Trive Africa by the company, nor an endorsement of the company by Trive Africa, nor does it necessarily imply any contractual relationship. Images are for illustrative purposes only and past performance is not necessarily an indication of future performance. No services are offered to stateless persons, persons under the age of 18 years, persons and/or residents of sanctioned countries or any other jurisdiction where the distribution of leveraged instruments is prohibited, and citizens of any state or country where it may be against the law of that country to trade with a South African and/or Mauritius based company and/or where the services are not made available by Trive Africa to hold an account with us. In any case, above all, it is your responsibility to avoid contravening any legislation in the country from where you are at the time.
CFDs and other margin products are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how these products work and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. See our full Risk Disclosure and Terms of Business for further details. Some or all of the services and products are not offered to citizens or residents of certain jurisdictions where international sanctions or local regulatory requirements restrict or prohibit them.
