For investors building their first international allocation, the choice often narrows to two funds that look like twins on the surface: iShares MSCI ACWI ex U.S.
ETF (NASDAQ:ACWX) and Vanguard FTSE All-World ex-US Index Fund ETF (NYSEARCA:VEU)
Both promise the entire investable world minus the United States. Yet they ride on different index families, classify South Korea differently, charge wildly different fees, and have produced a measurable performance gap that compounds over time. What each fund is actually betting on ACWX tracks the MSCI ACWI ex USA Index, which captures only large- and mid-capitalization non-U.S. equities.
MSCI also classifies South Korea as an emerging market, which tilts the fund’s emerging-markets weight higher. VEU tracks the FTSE All-World ex US Index, covering stocks of companies located in developed and emerging markets outside of the United States. FTSE classifies South Korea as developed and FTSE’s All-World series reaches further down the cap spectrum, giving VEU thousands more names and a structural small-cap kicker that ACWX simply does not carry.