Vanguard FTSE All-World ex-US Small-Cap Index Fund ETF Shares (VSS)

ETF Vanguard FTSE All-World ex-US Small-Cap Index Fund ETF Shares (VSS)

Profile:

VSS is an ETF that tracks the FTSE All-World ex-US Small Cap Index. This index comprises small-cap stocks from developed and emerging markets around the world, excluding the United States. VSS seeks to provide investors with broad exposure to the global small-cap market through a single investment.

Objective:

The primary objective of VSS is to track the performance of its benchmark index as close as possible, offering broad exposure to the global small-cap market through passive management. VSS aims to achieve long-term capital appreciation by investing in small-cap stocks with growth potential and diversification benefits.

Issuer:

Vanguard:

• Reputation: Vanguard is a highly renowned and respected financial institution with a well-established reputation for low-cost and passively managed investment products.

• Reliability: As of July 2023, Vanguard is the second largest asset manager globally, managing approximately $8.6 trillion in global assets. It is known for its commitment to long-term investing and strong governance and compliance processes.

• Management: Vanguard follows a team-based management approach where portfolio decisions are based on the entire group's analysis and insights. This provides stability and continuity in the long term.

Market Share:

As of July 2023, VSS had an estimated market share of 0.88% in the global small-cap equity ETF category with approximately $7.74 billion in assets under management. (source: Ycharts - Vanguard FTSE All-World ex-US Small-Cap Index Fund ETF)

Moat:

• Low Management Fee: VSS offers a low expense ratio of 0.12%, making it an attractive choice for cost-conscious investors seeking broad exposure to global small-cap equities.

• Strong Track Record: VSS has historically demonstrated solid performance compared to its benchmark, indicating effective portfolio management.

• Broad Diversification: VSS invests across numerous geographic areas, sectors, and industries, mitigating concentration risk and enhancing long-term growth potential.

Financial Performance:

• Since inception (1/4/12) through August 1, 2023, VSS's average annual total return is 9.32%, exceeding its benchmark index's return in 7 out of the past 11 years. (source: Vanguard - ETF Vanguard FTSE All-World ex-US Small-Cap Index Fund ETF Shares (VSS))

Growth Trajectory:

The global small-cap equity market is projected to experience moderate growth over the long term, driven by the expansion of emerging markets and economic recovery. However, VSS depends on a positive growth trajectory of individual assets and may be affected by economic and geopolitical factors causing market shifts and volatility.

Liquidity:

• Average Daily Trading Volume: The average daily trading volume for VSS in July 2023 stands at approximately 110,000 shares, indicating reasonable liquidity within its market sector.

• Bid-Ask Spread: VSS has a relatively tight bid-ask spread of around 0.08%, indicating minimal market impact during buying and selling.

Market Dynamics:

The global small-cap equity market can experience high volatility compared to larger companies as they are more responsive to market changes. External influences like economic growth, interest rate fluctuations, and global market sentiment can impact individual stock performance and overall sector trends.

Main Competitors:

• iShares MSCI EAFE Small-Cap ETF - EASE - Market Share 1.85%
• iShares Core S&P Small-Cap ETF - IJR - Market Share 11.52%
• Vanguard Russell 2000 ETF - VTWO - Market Share 8.02%

Expense Ratio:

The expense ratio of VSS is 0.12% which is considered low compared to similar small-cap ETFs.

Investment Approach and Strategy:

VSS employs a passive management strategy, closely tracking the FTSE All-World ex-US Small Cap Index. It holds the individual equities of the index in proportionate weights, reflecting the market capitalization of every constituent company. This provides broad diversification across multiple industries, countries, and market caps, minimizing the impact of individual stock performance on the overall return of the ETF.

Key Points:

• VSS provides low-cost exposure to a globally diverse portfolio of small-cap stocks.
• It follows a passive indexing approach with a proven track record of performance compared to its benchmark.
• The ETF boasts strong liquidity and relatively tight bid-ask spreads.

Risks:

Major risks associated with VSS:

• Market Volatility: Historical evidence shows that small-cap stocks are inherently volatile compared to large-cap investments, leading to potentially larger price fluctuations in VSS. Investors must be comfortable with this inherent risk level for this specific market segment.

• Small-Cap Risk: As an intrinsically high-risk asset class, small-cap companies face higher uncertainty than well-established companies. They might experience financial difficulty, liquidation, or market devaluations, impacting the VSS portfolio value.

• Global Risk: VSS's global market focus exposes investors to various additional risks, including: - Currency Risks: The ETF holds securities denominated in non-USD currencies, exposing the portfolio to foreign currency fluctuations that potentially affect its USD valuation. - Political Risk: The ETF invests in various countries with unique political conditions, susceptible to political instability or government policy changes impacting VSS's individual investments and overall return. - Market Regulations: Diverse countries have varying regulations impacting individual investments, impacting risk levels and the ability to buy or sell assets quickly due to regulatory restrictions that can affect the ETF's performance and liquidity.

Who should consider investing:

VSS suits investors willing to accept higher volatility in exchange for the potential for long-term capital appreciation and diversification with an ETF offering an expansive global reach into small-cap markets while maintaining affordable management expense.

This investment may benefit those seeking:

• Access to global small-cap markets without actively selecting individual holdings
• Diversification to complement an existing large-cap portfolio
• Exposure to the potential for higher growth opportunities associated with emerging markets

Fundamental Rating Based on AI:

Given its low expense ratio, strong track record against its benchmark, and global diversification through its indexing strategy, the AI assigns VSS a Fundamental Rating of 8.5 out of 10. This suggests a competitively managed and well-positioned ETF with solid potential for long-term growth, assuming its investment strategy aligns with your specific risk tolerance and financial goals.

However, investors should still research, analyze, and consider their financial situation and risk-tolerance before making investment decisions. The information provided here serves as an overview and not financial advice tailored to individual circumstances.