The Vanguard MSCI Index International Shares ETF (ASX: VGS) is a very attractive investment for a few different reasons.
This is an offer from Vanguard which allows investors to gain exposure to the global share market.
The ASX only accounts for around 2% of the global share market, so I believe it would be a mistake to avoid investing in the other 98% of the world’s businesses. Within that 98%, there are companies of such high-quality that aren’t available to a similar scale on the ASX.
There are few great reasons to own the VGS ETF, and I’ll list a few of them below.
Great management costs
One of the most useful aspects of Vanguard’s offering is that it tries to provide investment products as cheaply as it can, which is extremely beneficial for the investors who use them. Low fees can add tens of thousands, if not hundreds of thousands, of dollars onto someone’s net worth by the time they reach retirement. According to Vanguard, the annual management fee is 0.18%. That’s much cheaper than what a typical fund manager may charge of at least 1%.
We don’t know what the return share markets are going to deliver, but having lower fees is nearly always a good thing for supporting net returns.
Very diversified portfolio
I think diversification is an important part of achieving success because it lowers the risk of being exposed to any particular business or industry.
The Vanguard MSCI Index International Shares ETF is enormously diversified. It’s invested in approximately 1,380 holdings from across the world. The VGS ETF provides exposure to a lot of the world’s largest companies that are listed in major ‘developed’ countries.
Its biggest allocation is IT, with a weighting of 25.4%. That sector has a lot of the fastest-growing businesses with strongest margins, so it’s pleasing that IT has the largest allocation. Other industries with a position of at least 7.5% in the portfolio include financials (15%), healthcare (12%), industrials (11%), consumer discretionary (10.2%) and communication services (7.5%).
The US has by far the biggest allocation, of more than 70%, but numerous countries are represented within the portfolio including Japan, the UK, Canada, France, Switzerland, Germany, the Netherlands, Denmark, Sweden, Italy, Spain, Hong Kong, Singapore, Finland, Belgium and so on.
High-quality delivering performance
The VGS ETF owns a high-quality group of businesses. That comes through in the statistics – according to Vanguard the fund has a return on equity (ROE) ratio of 19.6% and a (current) earnings growth rate of 16.9%. These businesses are delivering good profits for shareholders.
It owns many of the world’s best businesses including Apple, Microsoft, NVIDIA, Alphabet (Google), Amazon, Meta Platforms (Facebook and Instagram), Broadcom and Tesla. Various other names are in the portfolio like Walt Disney, Netflix, Costco, McDonald’s, Visa, Mastercard and Adobe. They just don’t have large dividend yields, nor do they have franking credits.
Many of these businesses continue to invest extensively in their businesses to grow further, which makes me excited about the long-term potential of these stocks.
