# VXUS vs XEF or other international



## digitalatlas (Jun 6, 2015)

Hi,

I initially invested in VXUS a couple of years ago to get exposure to international markets when I was setting up my portfolio. At the time our dollar was strong, and I actually bought USD do this. Subsequently, when I set up my kid's RESP and converted my wife's mutual funds to ETFs, I started to allocate into XEF/XEC instead.

I've noticed right now that the initial batch of about 100 shares VXUS has a loss of about $150. Looking at google finance, it seems it has lost 10% in the last 2 years, while XEF has gained 15%.

I already have the rest of my portfolio set up for a passive portfolio with Can (ZCN)/US(VTI changing to VUN)/Int (XEF/XEC)/Bonds (XBB changing to VAB).

Given that I have VXUS in USD, there's at least some value in the US dollars. I wouldn't normally sell just based on the price, but given the dollar, and that I stopped buying VXUS, would it now be an opportune time to sell VXUS and purchase XEF/XEC instead? I've read about some of the other international offerings, but at some point, many of the ETFs seem pretty similar. Nevertheless, any other suggestions?

Thanks


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## Moneytoo (Mar 26, 2014)

digitalatlas said:


> Nevertheless, any other suggestions?


XAW or VXC (to replace VUN, XEF and XEC )


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## digitalatlas (Jun 6, 2015)

i already have my portfolios set up with VUN, XEF, and XEC, and since questrade buys ETFs for free, i don't really have an appetite for switching everything over to VXC or XAW right now. i don't imagine it's a good idea to sell everything and buy into a new ETF whenever a new one comes out, because they're always releasing a new one. And if i just keep holding everything including new ones, it adds to the number of ETFS I have, and that defeats the purpose of keeping it simple.

but if i was starting from scratch today, i'd probably use VXC or XAW for sure. thanks!

my key question right now is whether it's a good idea to sell VXUS and convert to canadian dollars given my situation outlined above.


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## GreatLaker (Mar 23, 2014)

VXUS is priced in US dollars, but since it holds non-US stocks it does not give US dollar exposure. It is the performance of the underlying holdings and their currency fluctuations relative to the C$ that matters. These posts on Canadian Couch Potato explain it.

Decoding International Equity ETF Returns
Currency Exposure in International Equity ETFs

CCP also did a post on VXUS: Under the Hood: Vanguard Total International Stock (VXUS)

I have the same approach to VXC and XAW as you. My portfolio was set up without them and at this point I don't see reason to sell what I have and switch to them, especially when their cost is slightly higher. Maybe years in the future when I am well into retirement and want to really simplify my portfolio I will reconsider.


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## GoldStone (Mar 6, 2011)

digitalatlas said:


> I've noticed right now that the initial batch of about 100 shares VXUS has a loss of about $150. Looking at google finance, it seems it has lost 10% in the last 2 years, while XEF has gained 15%.


My height is 183cm or 6 feet. Does it mean that I am taller in centimeters than I am in feet? Of course not.

VXUS vs XEF is the same idea. They own pretty much the same basket of international stocks. The underlying performance of stocks is the same as measured in local currencies (Euro, Pound, Yen, etc).

VXUS performance is measured in USD. XEF performance is measured in CAD. The difference between -10% and +15% is the currency move.


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## digitalatlas (Jun 6, 2015)

thanks to you both for the links and explanation. i understand that the underlying performance in local currencies is probably the same....why wouldn't it be, except for minor discrepancies. i guess my actual underlying question is, given the currency move between CAD and USD, does it seem like a good idea to sell my position in VXUS at this time and buy XEF instead. 

i wouldn't ordinarily do this (i.e. i don't try to time currency moves). but considering my subsequent international investments for other accounts were also in XEF (and not even in VXUS), would it be a good time to do this? cash out USD and buy similar holding ETF with CAD?


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## GoldStone (Mar 6, 2011)

VXUS and XEF give you the same currency exposure. In both cases, you are exposed to a basket of international currencies: British Pound, Euro, Yen, Australian dollar, etc.


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## GoldStone (Mar 6, 2011)

To put it another way:

Let's say you buy a house in London and pay in pounds. You start tracking the price of the house as expressed in CAD, your home currency.

You can convert the price in pounds to the price in CAD.

Or, you can convert the price in pounds to the price in USD to the price in CAD.

The end result should be the same.


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## digitalatlas (Jun 6, 2015)

ok, the real underlying question then is, given my situation, does it sound like it makes sense to sell off VXUS and buy XEF?

i know they both give the same currency exposure. i would have been just as well off if i had held VXUS or XEF because the underlying holdings made the same change. they only look different because of the change in currency values. but it happens that i bought VXUS when the dollars were similar, and now they're not. seem like a good time (given my situation) to sell the USD for CAD? and then re-invest in international holdings, which i know, will give similar performance, but i'm capitalizing on the stronger US dollar.

i'm thinking out loud here, following my own logic, but the idea is that since we seem to be at an 11 year low, if our dollar gets stronger in the future, this would have been a good move (i.e. convert USD to CAD). and i'm mainly considering this because i don't have any other VXUS, all my subsequent international purchases were in


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## Moneytoo (Mar 26, 2014)

digitalatlas said:


> i'm thinking out loud here, following my own logic


And how does it make you feel? 

(Sorry, just couldn't resist - as it was obvious that you can make your own decision, or rather made it already, but just waiting for someone to tell you to go ahead )


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## GoldStone (Mar 6, 2011)

digitalatlas said:


> i know they both give the same currency exposure. i would have been just as well off if i had held VXUS or XEF because the underlying holdings made the same change. they only look different because of the change in currency values. but it happens that i bought VXUS when the dollars were similar, and now they're not. seem like a good time (given my situation) to sell the USD for CAD? and then re-invest in international holdings, which i know, will give similar performance, but i'm capitalizing on the stronger US dollar.


Go back to my example. You own a house in London. Here's what you are proposing:

1. Sell house in London for USD.
2. Convert USD to CAD.
3. Use CAD to buy the same house.

Does it make any sense? Are you capitalizing on the stronger US dollar? Of course not.

Forget about the currency. Think about the assets. VXUS and XEF own the same assets. Okay, not *exactly* the same, but the differences are very minor. The assets remain the same, whether you price them in USD or CAD.


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## digitalatlas (Jun 6, 2015)

ok, so then i think you're saying...since the underlying asset are the same, let's say, hypothetically.. if CAD got stronger compared with USD, but the international asset stayed the same value (as an example), the value of the underlying international assets would still be the same, even though the actual price of the CAD ETF and the USD ETF would invert, and the magnitude of that inversion would be about the size of the currency movement, not because of a change in the value of the underlying asset (since we're assuming this doesn't change), since the underlying asset is the same. if the value of the underlying asset did change, it would all be pretty much the same at the end of the day after everything settled into a single currency whether i started with CAD or USD initially.

is there a scenario where one would be capitalizing on the stronger USD? i guess something like...sell USD, and buy something in CAD, in Canada, like a canadian stock or...i dunno, a pair of shoes in canada that's not imported from the US and hasn't been adjusted to reflect the differences in the dollars?

GoldStone, I really appreciate that you haven't given up on me, haha. I hope i got it right.


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## GoldStone (Mar 6, 2011)

digitalatlas said:


> ok, so then i think you're saying...since the underlying asset are the same, let's say, hypothetically.. if CAD got stronger compared with USD, but the international asset stayed the same value (as an example), the value of the underlying international assets would still be the same, even though the actual price of the CAD ETF and the USD ETF would invert, and the magnitude of that inversion would be about the size of the currency movement, not because of a change in the value of the underlying asset (since we're assuming this doesn't change), since the underlying asset is the same.


Correct. Let's say that international equities stay flat priced in their local currencies. USD weakens vs. the basket of international currencies; CAD gets stronger. XEF value priced in CAD would go down. VXUS value priced in USD would go up.



digitalatlas said:


> is there a scenario where one would be capitalizing on the stronger USD? i guess something like...sell USD, and buy something in CAD, in Canada, like a canadian stock or...i dunno, a pair of shoes in canada that's not imported from the US and hasn't been adjusted to reflect the differences in the dollars?


Sure, you can use CAD to buy beaten-up Canadian equities. But then your asset allocation would be out of whack (assuming you care about your asset allocation).

The purest play would be to buy CAD-hedged international ETF. Something like Vanguard VEF or iShares XIN. You would stay in the same asset class, but you wouldn't be penalized if CAD strengthens. Hedged ETFs are much more expensive than plain vanilla unhedged ones. To go hedged, you need a high level of conviction that CAD has bottomed. This is really a bet on the price of oil, because CAD is trading in lockstep with oil.

To be clear, I am not recommending that you switch to a hedged ETF. I just described a possible option.


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