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VT vs VWRD – Vanguard World ETF Comparison

Calvin Lo

Recently, I decided to move some money out of my Tiger Brokers (TB) account back into our Standard Chartered Online Trading (SCOT) joint account. Since the Vanguard Total World Stock Index Fund ETF (NYSE:VT) was my largest position in TB, naturally that would be the first candidate to be moved.

Read: Vanguard Total World Stock ETF (VT) – The Best Core Investment For Your Portfolio

I might also share more about the options and cost of transferring stock between brokers in a future post. For this post, I wanted to focus on the difference between VT and the Vanguard FTSE All-World UCITS ETF USD Dis (LSE:VWRD), which I spent quite a bit of time considering while doing the switch since I had the opportunity to choose.

Note that also there’s a dividend accumulating equivalent to VWRD, the Vanguard FTSE All-World UCITS ETF USD Acc (LSE:VWRA), and a GBP currency version too, VWRL. In this case, I was in favour of distributing one and in USD since I already have some for trading in U.S. market, so I went with VWRD.

I’ve been accumulating VT for the longest time, and I do so automatically with FSMOne too every month. The VT shares I hold in TB were actually back from before I discovered FSMOne RSP.

As to why I’m moving from TB to SCOT, 2 reasons:

  1. We recently hit SC Priority Banking status so we are no longer subject to the minimum commission of USD 10 for U.S. stocks/ETFs, so now we just pay the 0.20%.
  2. We have more confidence in SC vs Chinese brokers like TB/moomoo/Webull, especially with news of bank failures and crypto firms going bust though not directly related. Also, there was news late last year that Futu and UP Fintech (Tiger Brokers) Face Regulatory Action in China for allowing Chinese mainland investors to access overseas stock markets. I do still trade with Chinese brokers but just wary to limit the amount of capital we keep there.

Withholding Tax

The main difference between VT and VWRD and the one that was the main driver for me was the difference in withholding tax. For VT which is U.S.-domiciled, my dividends are taxed at 30% as a non-U.S. person, which takes a pretty big chunk out of my dividend income. In contrast, VWRD is Irish-domiciled and is subject to a lower rate of withholding tax of 15% due to tax treaty with the U.S.

Since VT has a dividend yield of 2.08% (according to StockAnalysis), that works out to only 1.46% yield after taxes. Assuming VWRD has effective tax rate of 15% (might actually be slightly lower since VWRD is not made up entirely of U.S. stocks ~58.5%), theoretically we should expect to get a 1.77% dividend yield. In reality, based on Vanguard website, VWRD is paying dividend yield of 1.98%.

I’ve not verified this, but as an investor in Singapore, you should get the entire 1.98% since the withholding tax is already charged when the U.S. company paid out the dividend to the ETF and there is no additional tax on dividends paid out by VWRD thereafter.

Taking 1.98% minus 1.46% would give us an advantage of 0.52% in favour of VWRD in terms of annual dividends.

The FI Pharmacist blog does a great job in explaining the intricacies of the withholding tax in this post (under Fund Domicile section).

I hope I got this part on withholding tax right. It’s quite a complex topic, so if you spot any inaccuracies please feel free to let me know. I’ll also update this post if I spot any errors or find more info as I do more research. Thanks!

Expense Ratio

VT has a much lower total expense ratio (TER) of 0.07% vs 0.22% for VWRD. The difference of 0.15% is not large but should appear as VWRD having a larger tracking error (return vs benchmark) than VT. However, I couldn’t find the tracking error information for both these funds.

Looking at the performance of both these funds vs their benchmarks over long periods, both seem to be performing pretty close to their respective benchmarks so I wouldn’t be too bothered about the difference in TER.

Benchmark

VT tracks the FTSE Global All Cap Index whereas VWRD tracks the FTSE All-World Index. Both are super similar but FI Pharmacist blog comes to the rescue once again with a detailed comparison here. IMO, the differences are too insignificant to make a dent.

Trading fees

I don’t usually trade London Stock Exchange (LSE) shares, so I wasn’t aware of the Stamp Duty charges of 0.5% until I got to the trade review page in my SCOT app. This is a once-off charge though only at point of trade.

For a USD 10,000 order, that would amount to USD 50. Considering the potential savings from withholding taxes of ~0.52%, optimistically that can be recovered within a year.

Source: Standard Chartered

Update (23 April 2023): I tried to execute a small order for VWRD and the stamp duty was NOT charged eventually when settled, although it appears in the trade preview. See screenshot below.

U.S. Estate Taxes

Another wildcard, which I’m still pretty blur on myself is that U.S. estate taxes. According to this article by Singapore Expat Advisory, quote “The U.S. imposes up to 40% estate tax rate (death duty) on U.S. assets above a $60,000 exemption threshold on assets of the deceased non-residents. Foreign estates become subject to U.S. estate taxation with respect to their U.S.-situated assets.”

Estate taxes is definitely out of my realm of knowledge (and the U.S. has a very complex tax system), so I can’t confirm this. However, to avoid complication in event of my death, I might just want to limit exposure to U.S. equities as a general principle. Diversification into LSE shares wouldn’t hurt either, unless I find some other tax implications for the U.K. down the road.

Closing Thoughts

Considering the savings in dividend withholding tax was offset by higher TER and stamp duty for VWRD, I opted to stay with VT instead for the lump sum I’m transferring from TB to SCOT.

That said, I’m considering making smaller purchases of VWRD just to get a better feel of the dividend yield, withholding tax, stamp duty, and performance difference vs VT if any. I tend to watch my investment closer if I have skin in the game.

Update (23 April 2023): I didn’t go through with VT but decided to buy a small test amount with VWRD. Since there’s no stamp duty charged, I’ll probably buy VWRD instead.

I’ll update this post if I find out anything more. Thanks for reading!

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Disclaimer: This is not financial advice. I am not professional financial advisor nor do I work in the finance industry. Anything I write here is purely my personal opinion. Please do your own research and due diligence before investing into anything. All investments come with associated risks. Best to consult a financial advisor if you’re still unsure.

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