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Vanguard FTSE Dev Markets ETF, VEA – An Index Of Indices?

Tim Worstall
Tim Worstall trader
Updated 1 Jun 2022

Trade Vanguard ETF Shares Your Capital Is At Risk

Key points:

  • A global large cap ETF is going to have low price volatility
  • It also provides exposure to global stock markets
  • Vanguard funds tend to be low fee, which is an advantage

The Vanguard FTSE Developed Markets ETF (NYSEARCA: VEA) can be thought of as an index of all the other major stock market indices. This isn't correct, not in detail it isn't, but it's a useful way of thinking about it. So, VEA will move in step with all of the major stock markets. This has its merits – it is to be invested in the general health of the global economy. That health as viewed from the capitalist side, of course, owning a piece of it.

There are downsides to this as well. One being that one is invested in the health of the global economy. All of the nuance and detail is ironed out simply because the holdings are over such a wide range. So, one economy doing better than another, or one company within such an economy, this just doesn't register on an ETF like VEA which is operating at an entirely higher level of abstraction.

Both of those, that upside and that downside, to this Vanguard ETF are of course the different sides of the same coin.

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As to VEA being an index of indices, well, in that detail no it isn't. It's not an accumulation of FTSE100, DAX30, CAC 40, AUX and so on. It's not repeating the constituent parts of those indices and then just being at that higher level of abstraction. The number of positions is large – around a thousand in fact. So, it could feasibly be just the agglomeration of those constituent parts of those other different indices. But there's be little point in that – we could just buy index trackers on each individual index, couldn't we?

Rather, The Vanguard FTSE ETF, this VEA, concentrates on large caps in each of those different markets. This again has its merits and its demerits. Large corporations tend to be responsive to general moves in the economy. So, we are therefore being exposed to those general economic conditions. That's rather the point. But this also means that we're light on exposure to small caps, which is where growth faster than the economy – with the associated higher risk – is usually concentrated. That also being the point of the investment strategy here.

As with all Vanguard funds and ETFs the expenses are low. So the amount being left with the fund managers is low – something good for long term performance of course. VEA is also huge, $100 billion or so in size (this obviously varies) and there's considerable trade in it, 20 million shares traded a day. This means that at the level of the individual investor there's no spread given that liquidity.

Price volatility is low though, so while trading in and out is cheap and efficient, there are no 10 baggers here or anything like that. The price range for the past year is between $42 and $52 for example. It is possible to dart in and out – because of that essentially zero spread – based upon ideas about global economic performance and or stock market spurts or swoons. But the very structure of the fund, being so large and global, rather dampens such effects.

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.