Shares

Today, we’re going to take a quick look at Vanguard’s Global Index ETF – VWRD. A fair bit of emails and questions I get frequently revolve around the purchase of VWRD. Thus, I thought this blog post would be great at addressing the common queries.

Disclosure – VWRD forms 30% of my asset allocation

What is Vanguard Group?

Vanguard Group is owned by Vanguard funds, which in turn are owned by investors and clients like us. Under this unique and one-of-a-kind structure, Vanguard must operate “at-cost” – it can charge the funds only enough to cover its cost of operations.

What fund can I buy that tracks global index?

Personally, I see diversification to be possible across

  • sectors/industries (financial, technological, oil & gas, etc)
  • geographical locations (single country, BRICS, emerging markets, entire world)
  • asset class (cash/bond/equities/real estate and property/precious metal e.g. gold/etc)

One of the simplest way to achieve maximum diversification is to purchase a global index fund. Simply invest in the “entire world”. Well, that would kind of “take care” of some sector and geography diversification. It is important to realize that portfolio holdings are capitalization weighted. This means that the biggest companies will take up a larger percentage of the fund, resulting in an ultimately, lop-sided diversification. North America will take up about 55%, for example, compared to Emerging Market’s 9% or Singapore’s 0.6%.

There are various fund houses that offer global index funds – a quick search online pulled up this article by Market Watch in 2012 which listed two mega-funds in iShares MSCI ACWI Index Fund and Vanguard Total World Stock ETF. 3 years is a long time, and both funds have since exceeded $6 billion in net assets. In this blog post, we shall only look at Vanguard funds, largely because of the unique, one-of-a-kind characteristic I’ve highlighted above which puts investors interest as top priority, always.

With Vanguard, one can simply buy a global tracker fund. VTWSX is the index fund equivalent, whereas VT (currently holding 6973 stocks) is the exchange traded fund version. Want to know the difference between an index fund and an ETF? Forbes has an article on Index Fund vs. ETFs.

Much of the online resources are based on the US enviroment, and chances are you will come across US citizens buying VTI (US market only) + VEU (World minus US) instead of just VT. Why so? This is because buying VTI (0.05%) + VEU (0.14%) will incur a lower expense ratio compared to VT (0.17%).

Despite the higher cost, VT would be a quick and easy solution. Or, is it?

How is VT related to VWRD? Why buy VWRD instead of VT?

VT is U.S. domiciled. As non-US citizens, Singaporean investors, our dividends are taxed at a hefty 30%. Moreover, investments exceeding $60,000 are subjected to estate tax liabilities. See my post here on building a Bogleheads Portfolio for more details.

VWRD serves as a nice alternative whereby (if I’m not wrong) dividends are already taxed at source. Dividends paid out by the Ireland-domiciled, London listed VWRD would no longer be subjected to dividend withholding tax. Also, estate tax liabilities only kicks in at a much higher investment value.

What is the difference between VT and VWRD?

The major difference between VT and VWRD lies with the fact that VWRD does not include small-cap companies. To me, the fact that both track global indexes (VT – FTSE Global All Cap Index vs VWRD – FTSE All World Index) with physical replication is the most important thing. While returns would definitely not be identical, I can be sure that their charts would be really similar to one another.

While VT is listed on the New York Stock Exchange, VWRL (GBP currency) and VWRD (USD currency) are listed on the London Stock Exchange. Do take note that dividends paid out by both VWRL and VWRD are in USD currency.

Does VWRD pay out dividends?

Yes, they do so quarterly. See the distribution schedule here.
In case you’re interested, the next ex-date is 19-March-2015.

Where can I obtain VWRD dividend history?

The full quarterly dividend history is on Vanguard courtesy of my reader, Max. Thanks!

There is no full quarterly history available as far as I’m aware of.
You can check the annual VWRD dividend history on MorningStar.

How can a Singaporean buy VWRD?

See my post here on building a Bogleheads Portfolio for more details.

What will happen to my investment if Vanguard goes bankrupt?

From my understanding, in all likelihood it is not possible – see the first point. Vanguard Group is owned by the funds, and the funds then contribute money to fund Vanguard Group operations. Not the other way round since Vanguard Group does not own the funds. For Vanguard Group to go bankrupt, all the contributing funds must be bankrupt too, meaning the world as we know it have gone KAPUT.