Vanguard Total Intl Stock Idx Fund

Fund Overview

Investors can expect a portfolio makeover from the Vanguard Total International Stock Index Fund as it transitions from tracking the MSCI EAFE + Emerging Markets Index to the MSCI All Country World ex-USA Investable Market Index.

As of April 04, 2012, the fund has assets totaling almost $68.31 billion invested in 6,458 different holdings. Its portfolio consists of a broad mix of foreign stocks from developed and emerging markets included in the MSCI All Country World ex-USA Investable Market Index.

Management’s decision to switch the fund’s benchmark means substantial changes for portfolio weightings in terms of market capitalization, countries, and the total number of fund holdings. “We believe that the new target benchmark offers a better representation of the international equity universe, offering exposure across the capitalization spectrum, including small-cap issues,” said Vanguard’s chief investment officer Gus Sauter in a September 2010 press release. The new benchmark encompasses 98 percent of the world’s non-U.S. markets.

The fund’s new index includes Canada—making it the third-largest country weighting in the portfolio after the United Kingdom and Japan. The fund’s new index encompasses more of the investable market, meaning the fund will likely hold substantially more companies than the 1,800 or so it held in the past. The new index also has more exposure to small-cap companies, which might help balance the fund’s overweight holdings in large-cap stocks/.

Like many index funds during the financial crisis, the Vanguard Total International Stock Index fund suffered big losses throughout the downturn, losing 58 percent of its net asset value between late 2008 and early 2009. However, a double-digit return in 2009 and relatively solid performance in 2010 put the fund is on more stable footing along with the rest of the market. The fund has returned -7.13 percent over the past year and 18.64 percent over the past three years.

Before August 2008, the fund was made up of three other Vanguard index offerings: Vanguard European Stock Index, Vanguard Pacific Stock Index , and Vanguard Emerging Markets Stock Index. The fund has since transitioned into investing directly in stocks, first following a customized index combining developed and emerging markets, then, as of late 2010, the MSCI All Country World ex-USA Investable Market Index.

As of the end of March, the fund’s five- and 10-year trailing returns put it in the top fifth of Morningstar’s foreign large blend category. Shorter-term trailing returns are solid but not stand-outs. The fund has returned -2.01 percent over the past five years and 6.87 percent over the past decade.

Investment Strategy

This fund uses a “passive management,” or index-style investment approach to closely mirror the MSCI All Country World ex-USA Investable Market Index. According to the prospectus, the fund invests all of its assets in the common stocks included in the index, but might use a form of sampling to reduce risk.

The MSCI All Country World ex-USA Investable Market Index includes more than 6,000 stocks of companies located in 44 countries, such as the United Kingdom, France, Australia, Japan, India, Colombia, and Malaysia.

Role in Portfolio

Morningstar calls this fund a “core” investment.

Fund Opinion

The fund appears on the 2011 Money 70 list of recommended mutual and exchange-traded funds.

Money 70

The fund's Value Line Overall Rank, a measure of risk-adjusted performance and relative growth in fund returns, is 5 on a scale of 1 to 5, with 1 being the best and 5 the worst.

Value Line 2012-03-09

Management

Since co-manager Duane Kelly left the fund in late November 2010, Michael Perre has managed the fund alone. Perre has been with the fund since 2008 and has worked in investment management for more than 20 years.

In the annual Lipper/Barron's Fund Families Survey of 2010, the Vanguard Group family ranks 25 out of 57 fund families surveyed.

Lipper 2011-04-08

Performance

The fund has returned -7.13 percent over the past year, 18.64 percent over the past three years, -2.01 percent over the past five years, and 6.87 percent over the past decade.

Hypothetical Growth of $10,000

Updated 03.31.2012

The fund's Value Line Growth Persistence rank, which awards funds that consistently outperform their broad universes, is 4 for one year, 4 for five years, and 2 for 10 years. Scores are on a 1 to 5 scale, with 1 being the best and 5 the worst.

Value Line 2012-03-09

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Holdings

The fund’s holdings mirror the MSCI All Country World ex USA Investable Market Index. As of end of 2010, the fund had 48 percent of total assets invested in the European region and 39 percent in the Asia Pacific region.

Asset Allocation

	% Long	% Net
Cash	0.72	0.72
Stocks	0.21	0.21
Bonds	0.01	0.01
Other	2.25	2.25
Foreign Bonds	0.0	0.0
Foreign Stocks	96.62	96.62
Convertible	0.0	0.0
Preferred	0.19	0.19

Updated 12.31.2011

Top Holdings

Performance as of 03.31.2012

Portfolio as of 12.31.2011

	Ticker	YTD Return %	% Net Assets
Nestle SA	NESN	---	1.2
Vodafone Group PLC	VODPF	1.09	0.9
HSBC Holdings PLC	HBCYF	21.26	0.86
BP Plc	BP.	---	0.85
Novartis AG	NVSEF	-0.98	0.84

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Fees

Index funds generally have lower expenses than actively managed funds. Vanguard Total Intl Stock Idx Fund has an expense ratio of 0.22 percent.

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Risk

This fund’s exposure to emerging markets might increase stock price volatility. Also, like all index funds, it can’t move out of weak stocks or sectors during market downturns.

The fund's Value Line Risk Rank, a measure of volatility, is 4 on a scale of 1 to 5, with 1 being the least volatile and 5 the most.

Value Line 2012-03-09

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