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DLEUX as a replacement for VXUS?

I am considering switching my international holding from VXUS to DLEUX. What prompts me to consider this is that I am pleased with my holding in DSENX (DLEUX's "cousin"). I know that DLEUX isn't as diversified as VXUS. Thoughts? Thanks!


  • Over DLEUX's lifetime (Dec 23, 2016 to present), VTIAX's total return has been 24.31%, while DLEUX has returned 23.69%. Not a big difference one way or the other.

    (Remarkably, it is still possible to coax this data out of M*.)

    DLEUX gets its equity exposure from swaps. This frees up its cash to invest 100% of the NAV in bonds. So for every dollar you invest, the fund's got about $2 of exposure to securities.

    As the prospectus states: " Fund’s total investment exposure (direct investments in debt securities plus notional exposure to the Index) will typically be equal to approximately 200% of the Fund’s net asset value."

    Having less diversification can sometimes be ignored, e.g. S&P 600 vs. Russell 2000. Sometimes it's desired (concentrated portfolios). But here, the change would not be merely greater concentration, but a big change in focus.

    DLEUX's index covers primarily large/mid cap European companies. This switch would get rid of all exposure to small caps and to emerging markets and even to all the developed countries outside of Europe, including Japan, S. Korea, Israel, HK, Taiwan, Australia, NZ, and Canada.

    To put it another way, only 40% of VTIAX/VXUS is invested in developed Europe. You'd be jettisoning the other 60% of the world. I've owned a European fund, so I'm not averse to it. I'm just pointing out that, for several reasons, this change would be more than just switching one international fund for another.

    Do it because large European companies are where you want to put your money (and because you want some leverage), not because DSENX has done well.
  • edited July 2019
    What msf said.

    I too put lotsa moneys into DLEUX (close to its start) based on DSEEX performance, but over time it turned out to be quite wanting, only recently matching or outperforming peers, and so I bailed when it went above breakeven.
  • Good advice...thanks! I think I'll stay with VXUS
  • I never got into DLEUX, but I am a fan of DSENX and CAPE. It's hard to make a case for international stocks. CAPE has gained 96% over the past five years while VXUS has lost 1.27%. The highly touted FMIJX has a yearly return of about 5% for the same time period. I own some SMID global/international and some MIOPX, but the days when I owned a big chunk of international either in my TIAA retirement account or my actively managed portfolio are long gone. Foreign under performance is quite long standing as typified by the demise of Harbor International, a former kingpin. On the other hand, I am a fan of global funds (MGGPX, ADPFX, ARTRX).
  • Looking at its returns from the life of the fund, DLEUX it seems to be reasonably comparable to VXUS in terms of both performance and volatility. I don't see a clear "winner" for either.

    Were I intent on maintaining a broad, intl equity exposure here (I'm not), I'd probably favor EFAV (a DM min-vol ETF). Or pair EFAV with EEMV in a 60/40 ratio. Doing so tamps down volatility vs DLEUX (& VXUS), without sacrificing returns. (In fact the min-vol pairing and EFAV alone both produced greater returns than DLEUX from its inception.
  • What am I missing here? VSUX is nothing like DLEUX. By chance, maybe the returns have been similar, but a fund dedicated 100% to European indexes (with bells and whistles) is nothing like a diversified international fund like VSUX. DLEUX is pretty much a sector fund. If that's your cup of tea, go for it. But don't buy it ans compare returns to a diversified international fund.
  • >> VSUX is nothing like DLEUX

    Huh. DLEUX as sort of a subset or component of VXUS has been discussed, and when their graphs are overlaid any customer would see congruence that does not have to do with chance.
  • According to Porfolio Visualizer, VTIAX (VXUS) and VEURX correlate 0.96.

    DLEUX doesn't correlate as well to either of them, but it still correlates more closely to the Europe index (0.92), than to the total int'l index (0.87).

    Here's the correlation matrix, and the PV page showing graphs of the three funds. Scroll down the page to see the graphs.

    To paraphrase Sesame Street, one of these curves is not like the others.
  • The graph shows they are all quite alike, by SS or any other lay standard, but DLEUX has not done as well as VEURX until recently, again as mentioned.
  • msf
    edited July 2019
    As Groucho Marx might say, who are you going to believe, me or your lying eyes? A problem with visuals, and why I generally prefer numbers, is that visuals can be deceiving. The curves may appear alike because each represents an incremental change, much like placing a frog in simmering water.

    Here's another numeric representation, which may illustrate what I'm saying. It's the correlation matrix between a total international index fund (VTIAX/VXUS), a developed market index fund (VTMGX/VEA), a developed market ex-Canada (EAFE) index fund (MAIIX), a developed Europe index fund (VEUSX/VKG), a developed Pacific index fund (VPADX/VPL), and DLEUX.

    Correlation matrix

    Like the frog in boiling water, I've arranged these (except for the Pacific fund) in order of incremental changes. They go from a fund covering all regions and sizes of companies outside the US to one that excludes emerging markets, to one that also excludes Canada, to a pure European one (i.e. also excluding Asia).

    For comparison, a pure Asian developed market index is included, as is DLEUX.

    Rather than post the correlation coefficients, I'll give the R^2 values, since this is the statistic that is supposed to show what percentage of variation in one fund is "explained" by change in another fund.

    The R^2 values for DLEUX relative to the other funds are:
    Total Int'l (VTIAX): 76%
    Developed Mkts (VTMGX): 76%
    EAFE (MAIIX): 79%
    Developed Europe (VEUSX): 85%

    Developed Asia (VPADX): 55%

    Clearly, the more of the world outside of Europe that is discarded, the more the portfolio behaves like DLEUX. I don't consider an R^2 of 76% to be especially good, but your lying eyes may tell you something different. :-)
  • The table's correlation results of .87, .87, .89 and .92, along with the overlaid closely tracking graphs, would make most go with their lying (nice) eyes, for example financial advisers. It's a wonder everyone in investments uses graphs as they do if r-squared is the way to go, but even those values show correlation (that is, >>70%) except of course for the Developed Asia outlier.
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