iShares int'l funds are more tax-efficient in a taxable account. Vanguard int'l funds are more tax-efficient in a tax-qualified account like a 401K or IRA.
A Vanguard fund like VXUS (at least in the past, I haven't checked lately) has paid less foreign tax than the iShares fund IXUS. Since you won't get a foreign tax credit holding the fund in a tax-qualified account, that is a win.
iShares int'l funds are optimized to maximize qualified dividend income. My belief is that they do this by sampling the index using a portfolio optimizer (a tried and true technique of indexing). They could achieve a higher percentage of QDI by including that in their optimizer goal and/or constraints. You can see that sampling is used for IXUS by noting that the fund holds 4366 stocks (as of Feb 27, 2024) while there are 6676 stocks in the index it tracks (as of Jan 31, 2024). Sampling is the original method of index fund portfolio management, and has been in use since the 1970's. It has a little higher risk of index tracking error relative to full replication.
Another difference is that Vanguard returns 100% of net securities lending revenue to the investor. I believe iShares keeps 20% of the net revenue. I believe iShares does a higher volume of securities lending as well, taking a little more lending risk.
So there are tradeoffs. Neither fund is inherently superior to the other. Which you prefer should be based on your objectives.
A Vanguard fund like VXUS (at least in the past, I haven't checked lately) has paid less foreign tax than the iShares fund IXUS. Since you won't get a foreign tax credit holding the fund in a tax-qualified account, that is a win.
iShares int'l funds are optimized to maximize qualified dividend income. My belief is that they do this by sampling the index using a portfolio optimizer (a tried and true technique of indexing). They could achieve a higher percentage of QDI by including that in their optimizer goal and/or constraints. You can see that sampling is used for IXUS by noting that the fund holds 4366 stocks (as of Feb 27, 2024) while there are 6676 stocks in the index it tracks (as of Jan 31, 2024). Sampling is the original method of index fund portfolio management, and has been in use since the 1970's. It has a little higher risk of index tracking error relative to full replication.
Another difference is that Vanguard returns 100% of net securities lending revenue to the investor. I believe iShares keeps 20% of the net revenue. I believe iShares does a higher volume of securities lending as well, taking a little more lending risk.
So there are tradeoffs. Neither fund is inherently superior to the other. Which you prefer should be based on your objectives.
Statistics: Posted by Northern Flicker — Thu Feb 29, 2024 3:01 am — Replies 4 — Views 603
