VIU vs XEF: Which International ETF is Best in 2026?

Summary: VIU vs XEF

The main difference between VIU and XEF is their geographical classification of South Korea and their underlying fund structure. Vanguard’s VIU tracks the FTSE Developed All Cap ex North America Index, which includes South Korea as a developed market. iShares’ XEF tracks the MSCI EAFE IMI Index, which classifies South Korea as an emerging market. While both offer low fees (0.22% to 0.23%), XEF is slightly more tax-efficient in non-registered accounts because it holds its stocks directly rather than through a U.S. wrapper.

What are International Index Funds?

International markets refers to developed economies outside of Canada and the United States. These are often called EAFE markets, which is an acronym for Europe, Australasia, and the Far East. While many Canadian investors stop after buying the S&P 500 (like VFV) and the TSX (like VCN or XIC), they are effectively ignoring more than a third of the world’s investable wealth. International markets provide exposure to global hubs of innovation and industry in countries like Japan, the UK, France, Australia, and Germany.

By adding an international ETF like VIU or XEF to your portfolio, you are actively combating concentration risk. The Canadian market is heavily tilted toward Financials and Energy, making your net worth highly sensitive to oil prices and domestic interest rates. Similarly, the U.S. market has become increasingly top-heavy, with a handful of tech giants driving the majority of its returns. International markets offer a different flavor of growth, dominated by massive “blue-chip” leaders in sectors like Industrials and Consumer Discretionary (think of global titans like Toyota, Nestlé, Samsung, and Louis Vuitton).

Integrating these assets can create a more balanced, “all-weather” portfolio that can better withstand a slump in any single North American sector.

Comparing VIU vs XEF by the Numbers

Key Differences Between VIU & XEF

Key Difference 1: The “South Korea” Factor

VIU follows the FTSE index, which considers South Korea a “Developed” nation. If you want exposure to companies like Samsung in your international fund, VIU is the choice.

XEF, on the other hand, follows the MSCI index, which still classifies South Korea as an “Emerging” market. So, if you hold an Emerging Markets ETF (like VEE or XEC) alongside XEF, you will find South Korea there instead.

MM Tip: If you own XEF and an Emerging Markets fund, you’re covered. If you own VIU AND an Emerging Markets fund, make sure your Emerging fund doesn’t also include South Korea, or you’ll be doubling up!

Key Difference 2: Tax Efficiency and Structure

For investors using a Non-Registered (Taxable) account, XEF has a slight edge. This is because XEF holds its international stocks directly. This reduces “Foreign Non-Business Income Tax” leakage.

VIU is different as, historically, it has operated as a “wrapper” for a U.S.-listed ETF, though Vanguard has moved toward direct holdings. Currently, XEF is often cited by “tax experts” as the slightly more efficient “pure” play for taxable accounts.

Should you Invest in VIU or XEF?

It depends! Because both ETFs have nearly identical fees and massive liquidity, you cannot make a “wrong” choice.

To put it simply, choose VIU if you want the most “complete” developed market coverage (including South Korea) and you already use other Vanguard products like VCN or VFV. If, however, you want a slightly lower MER (difference of 0.01%) and prefer the MSCI index methodology, then XEF might be for you (and the tax efficiency in a non-registered account can help!).

At the end of the day, regardless of what option you go with, the international market offers a different sector weights than Canada And the United States, as the international markets (EAFE) offer much higher exposure to Industrials and Consumer Discretionary brands.

If you enjoyed this comparison, check out our recent comparison of VCN vs. XIC if you’re looking for some Canadian ETFs.