ETFs Invest

IWDA vs VTI – What’s The Difference?

IWDA vs VTI2

Last updated on January 8th, 2022

If you are looking to diversify your portfolio, you probably would have come across IWDA and VTI. Both these funds provide you exposure to some of the world’s largest and most widely held stocks while spreading your portfolio over several sectors.

With both ETFs being a decent choice to add to your portfolio, you may be wondering what are the key differences between these two indices, and which should you invest in?

Here is what you need to know to help you decide:

The difference between IWDA and VTI

IWDA is a fund that tracks the performance of the MSCI World Index, which includes 1,560 holdings from across 23 different countries with large and mid-cap companies.

In contrast, VTI is a fund that tracks the CRPS US Total Market Index, which includes 4,122 holdings across large, mid and small-cap companies, representing almost the entire US investable equity market.

The funds thus differ in the type of markets they expose you to, with the main difference between the number of countries they pull stocks from.

Country diversification

VTI holds shares limited to the US market alone. It is the perfect representation of the entire US market as it includes almost all the listed companies in the US. This includes the usual mid and large caps, as well as the small-cap companies.

On the other hand, IWDA includes holdings from 23 different developed countries. Here is the geographical breakdown in percentage of the shares IWDA has a stake in.

CountryWeightage
United States68.32%
Japan6.41%
United Kingdom 4.09%
France3.29%
Switzerland3.20%
Germany2.80%
Australia2.52%
Netherlands1.98%
Sweden1.43%
Other 14
developed countries*
4.89%

*Austria, Belgium, Canada, Denmark, Finland, Hong Kong, Ireland, Israel, Italy, New Zealand, Norway, Portugal, Singapore, Spain

What does this mean for investors like you and me?

IWDA may be a better option if you are looking for a greater diversity of countries to invest in. Meanwhile, if you have a high conviction of the US market, VTI may be a better option as all of its holdings fall in the US.

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Fund manager

Both funds are managed by reputable companies that have a good track record and have been in the industry for a long time.

IWDA is managed by BlackRock, one of the largest asset managers in the world. BlackRock has over $5 trillion in assets under management and offers a wide range of investment options for investors.

VTI is managed by Vanguard, a mutual fund company that has been around since 1975. Vanguard has over $7.50 trillion in assets under management and offers over 16,000 different products for investors to choose from.

Currency and exchange

Both ETFs are traded in USD. However, they differ on the exchange that they are traded on.

IWDAVTI
London Stock Exchange (LSE)New York Stock Exchange (NYSE)

As US exchanges are more readily available, this means that VTI is more accessible as compared to IWDA which is on the LSE.

Dividend distribution

IWDA is an accumulating fund, which means that your dividends will be automatically reinvested for you at no extra charges.

This is great if you initially intended to reinvest your dividends, as the fund managers will do it automatically for you!

Meanwhile, VTI is a distributing fund, which means that your dividends will be distributed out and paid to you.

This gives you the flexibility of doing what you want with your dividend income, letting you choose to reinvest back into the fund or invest in other assets.

You can find out more about the differences between an accumulating and distributing fund here.

Type of ETF 

IWDA is an Ireland-Domiciled ETF while VTI is a US-Domiciled ETF. This will affect the dividend withholding tax and estate tax that you will incur if you invest in either of these funds.

Ireland-Domiciled ETFs like IWDA benefit from the US/Ireland tax treaty rate of only 15%.

In contrast, if you were to invest in VTI on the US stock market, you will have to pay a tax of 30% on dividend income, as Singapore does not have a tax treaty with the US.

As such, investing in IWDA will be better for you compared to VTI in terms of cutting costs of tax as you will save 15% from dividend income taxes.

What’s more, in investing in an Ireland-Domiciled ETF like IWDA, you get to save on the rather hefty US estate tax as well.

Estimated unit price

The unit price of each ETF is the price you’ll need to pay for 1 unit. 

IWDA and VTI have vastly different unit prices, with VTI being almost almost 3 times more expensive than IWDA as of 26th December 2021.

IWDAVTI
Estimated Unit Price$88 USD$240 USD

This makes IWDA a lot more accessible to invest in if you have a smaller amount you are able to invest in! IWDA is thus a cheaper way to diversify your portfolio if you are newer to investing.

Types of stocks

IWDA contains 1560 holdings which include both large and mid-cap companies in developed countries while VTI contains small, mid and large-cap companies from the US.

A large-cap company is one that has a market capitalisation of more than $10 billion.

A mid-cap company has a market capitalisation between $2 billion to $10 billion.

A small-cap company has a market capitalisation of about $300 million to $2 billion.

Investopedia

The market cap of a company can be determined by multiplying the stock price by the number of outstanding shares.

What is the significance of the difference between the type of stocks these two funds hold?

VTI holds about 18% of its holdings in small-cap companies. These small-cap companies fluctuate a lot more than mid and large-cap companies, having the ability to completely go bankrupt or have their value skyrocket very rapidly. 

This causes VTI to be considerably more volatile than IWDA, which only holds mid and large cap shares.

If you’re interested in finding out more about IWDA in comparison with another fund that represents the US market but only has mid and large-cap stocks as well, here is a comparison between CSPX and IWDA for you.

Top Sectors

Here is a comparison between the top 5 sectors that are found in IWDA and VTI as of 26th December 2021.

IWDAVTI
Information Technology (IT) 23.8%Information Technology (IT) 29.5%
Financials 13.1%Consumer Discretionary 16.5%
Consumer Discretionary 12.6%Industrials 12.6%
Healthcare 12.3%Healthcare 12.4%
Industrials 10.1%Financials 11.1%

Both funds have very similar weights, with IT being the top sector of both IWDA and VTI with 23.8% and 29.5% respectively.

Since IT has been one of the fastest-growing sectors in the past few years, the difference in the percentage of holdings in IT may skew in the favour of VTI. This will be explored further in the difference in performance below.

Apart from a few slight differences, either one of the funds will give you a fairly balanced diversification, with a major portion of your investment in IT.

Top holdings

Now, let us take a look at the top 5 holdings of each of the funds.

IWDAVTI
Apple 4.7%Apple 5.5%
Microsoft 3.9%Microsoft 5.3%
Amazon 2.5%Amazon 3.2%
Tesla 1.4%Tesla 2.0%
Alphabet Inc A (Google) 1.4%Alphabet Inc A (Google) 1.82%

Again, we can see that both IWDA and VTI have very similar top holdings. The only difference being the stock allocation, with VTI having a slightly higher allocation in these companies.

As these companies have been powerhouses in growth in the last 5-10 years, this has given VTI a bit of an edge in growth as well.

Performance

Both funds have performed very well in the past 5 years, with IWDA having an average annual return of 14.3% while VTI having a 15.8% average annual return.

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5 year performance for IWDA
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5 year performance for VTI

If you were to purchase both funds 5 years ago, you would be up 93.3% for IWDA. VTI on the other hand, would have returned 108.7% (more than double your initial investment).

As explained above, VTI has outperformed IWDA by a small margin as it has a greater proportion of its holdings in the top US companies. These US companies have led the growth in the global economy, especially with major companies like Apple and Microsoft who are the biggest in the world.

Furthermore, the small cap shares that VTI include in their portfolio has done considerably well in the past 5 years, adding to VTI’s gains as well.

However, past performance does not indicate future returns, so it will be good to do your own research first, before investing in either fund!

Expense Ratio

On top of the trading commissions you’ll need to pay the broker, you will have to pay an expense ratio to the fund manager as well.

The expense ratio is charged by the fund manager to cover the costs of running the fund.

Based on the value of your assets in the fund, you will be charged an annual fee.

Investopedia

Here are the expense ratios for these 2 funds:

IWDAVTI
Expense Ratio0.20%0.03%

The expense ratio of VTI is lower than IWDA. This means that over time, you would be paying lower fees if you were to invest in VTI as compared to IWDA.

As such, you may want to take this into consideration when deciding which to invest in! 

Liquidity

If you are looking to actively trade using these ETFs, you may want to look at their liquidity. One of the indicators you may want to look at is the ETF’s average trading volume.

IWDAVTI
Average Trading Volume333.8K3.9M

VTI has a much higher average trading volume as compared to IWDA, with over 10 times more average trading volume. This could be due to VTI being listed on the NYSE, which has a lot more trading activity as compared to IWDA which is listed on the LSE.

This makes VTI easier to buy and sell, as there are considerably more people constantly looking to purchase or sell their shares.

Verdict

Here is a comparison between IWDA and VTI:

IWDAVTI
Type of stocks Large and mid cap equities
from 23 developed countries
Large, mid and small
cap equities all over the US
Unit priceLowerHigher
Number of holdings1,5604,122
Top sectorsInformation Technology (IT) 23.8%
Financials 13.1%
Consumer discretionary 12.6%
Healthcare 12.3%
Industrials 10.1%
Information Technology (IT) 29.5%
Consumer Discretionary 16.5%
Industrials 12.6%
Healthcare 12.4%
Financials 11.1%
Exposure to global economySlightly strongerSlightly weaker
Expense ratioHigherLower
LiquidityLowerHigher
Past performanceWeakerStronger

So which index should you choose to invest in?

Choose IWDA if you want a more diversified portfolio across multiple countries

IWDA is diversified across 23 different developed countries. Even though it may still have the majority of its holdings in the US (68.32%), it is still more diversified than VTI which is limited to only the US.

Despite not performing as well as VTI, IWDA has also similarly climbed to all time highs after major crashes. An average annual return of 14.3% is still a healthy amount for a long term investment.

IWDA is also more insulated against a major crash in the US stock market as it still has over 30% of its holdings held in other countries. This makes IWDA a relatively safer investment if you are slightly more risk averse.

In the event that another country outperforms the US, you will still be exposed to it, as compared to VTI which is solely concentrated in the US!

Choose VTI if you are confident in the US economy

VTI tracks the entire US market, which has historically been one of the best performing economies in the world. By investing in VTI which includes almost all purchasable equities in the US, you are theoretically buying into the US economy as a whole

VTI has survived and eventually climbed to all-time highs after every major crash in the past decade. As such, investing in VTI is a rather safe way of buying into an already diversified portfolio

As VTI has more holdings and includes small-cap shares as well, it can be seen as a more volatile fund. This has been more of a boon than a bane in the past decade as the entire US economy (including the small-cap shares) have performed very well.

However, past performances may not be indicative of how the fund will perform in the future! These volatiles small-cap shares may perform worse or even cause a loss for the fund the next time!

If you are looking for flat numbers, VTI also just outperforms IWDA in its average annual returns. With a higher concentration in the US market, as the global economy continues to be led by the US’s economic growth, VTI will continue to outperform IWDA in the long run.

Despite this, you may want to take note that VTI is still very concentrated in just the US.

Conclusion

Both IWDA and VTI allow you to purchase into a diversified portfolio that can benefit from the growth in the global economy. 

Moreover, Vanguard has another ETF (VT), and you can view how it differs from both IWDA and VTI.

The main considerations you should have include: 

  1. How confident you are in the US market
  2. How diversified you want to be outside of the US market
  3. Your personal risk level

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