Vanguard Plans ETF With Canada Exposure

Hougan notes that over the past five years, iShares Canada(EWC Quote) has returned around 125% cumulatively, while iShares MSCI EAFE has returned just 83% cumulatively.

And, he adds, "a back-of-the-envelope calculation shows that adding a 5% exposure to Canada would have boosted cumulative returns of the EAFE index by about 2.5% over the past five years, or somewhere in the range of 40-50 basis points per year. That's more than the expense ratio on many ETFs, including both EFA (35 basis points) and the new Vanguard international fund (25 basis points)."

Naked Shorts' Newton takes a more skeptical view, however. "Anything that [represents] 5% [of a portfolio] would have to go up or down 20% to make a 1% difference to the overall deal," he says.

Vanguard's Lohrey concedes the FTSE All-World ex-USA Index Fund's allocation to Canada is "not huge." For investors who are already invested in the firm's Total International ETF, which excludes Canada, he says, "I don't know I would be motivated to sell the holdings to get Canada."

However, he says investors who don't already own Total International should "seriously consider" using the FTSE All-World ex-USA Index Fund.

Lohrey says that for investors who want total global exposure, buying a total market U.S. ETF (such as an S&P 500 ETF) and the new Vanguard product is a better option than buying a U.S. ETF and an international ETF that excludes Canada and tacking on a Canada-only ETF. (Currently the only Canada ETF is the iShares MSCI Canada Index Fund(EWC Quote).) He says buying just two ETFs, as opposed to three, is more convenient and will generally mean lower trading commissions.

Hougan agrees that the new ETF is a good bet for investors who want global exposure, and believes that future ETFs are likely to follow in these footsteps.

"This is probably just the first such product," he says, adding that including Canada in broad-based international ETFs "might even become a new best practice."