A Vanguard Fund Offers Diversification at a Price
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Wednesday, April 14, 2010

A Vanguard Fund Offers Diversification at a Price

The Vanguard Total World Stock Index Fund looks great on paper, The Wall Street Journal reported Wednesday, but may have some flaws beneath the surface that could hurt in the long run.

In Wednesday's Fund Track column, The Journal was quick to note that the Total World fund, which invests in global as well as domestic stocks, has the potential to be more volatile than its sister fund, The Vanguard 500 Index Fund. The Total World holds equities from emerging-markets and currency fluctuations that add diversification to a portfolio, but are more unpredictable than other securities, Morningstar analyst Scott Burns said.

Popular index funds, such as the Vanguard 500 and SPDR S&P 500 ETF, generally focus on just on large-company U.S. stocks, and there are not many global index stock funds like the Total World. The fund was launched in 2008 and has had 48 percent returns over the past year. The Vanguard 500 saw 43 percent returns over the same period.

Other criticisms mentioned in the column include the fund's disregard for small-companies and its high fees. A Vanguard spokeswoman told The Journal that the high costs reflect the fund's small size.

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