Should you invest in Vanguard All-World ex-U.S. Shares Index ETF (ASX:VEU)?

There are few exchange-traded funds (ETFs) on the ASX that provide as much diversification as Vanguard All-World ex-U.S. Shares Index ETF (ASX: VEU), should you invest in it?

As the name might suggest, it looks to give investors exposure to shares listed all across the globe, except for in the US.

Let’s look at the good aspects and less appealing aspects of this ETF:

Good parts

  • Low cost: Vanguard is a world leader in offering investors access to the share market for low fees. The lower the fees, the higher net returns are left for us. This particular ETF has an annual management fee of only 0.11% – one of the lowest in Australia.
  • Diversification: One of the most important ways to mitigate risk is to make sure your shares are not all exposed to the same risk. This ETF has more than 1% of its holdings invested in at least 19 countries. It’s invested across many different industries. It’s invested in over 2,750 shares. It’s very diversified.
  • Dividend yield: Unlike other internationally-focused ETFs that have dividend yields that start with a 1 or a 2, this ETF has a dividend yield of 3% according to Vanguard.

Less appealing

  • Performance: Ultimately what we are after is investment returns. Over the past five years its average return per annum has been nearly 10% and since inception in May 2009 its average return per annum has been 8.3%. Whilst this isn’t bad, it isn’t great.
  • Misses out on big winners: This ETF has missed out on the strong performance of US shares, meaning that Vanguard MSCI Index International Shares ETF (ASX: VGS) may be the better option as it includes US shares. The Vanguard All-World ex-U.S. Shares Index is so diverse that its performance is always going to be hampered by a lower-performing region such as Europe or Japan in any one year.
  • Lower return on equity: Past performance is not (really) an indicator of future performance. However, Charlie Munger has pointed out that it’s unlikely a business will outperform its return on equity (ROE) or assets over the long-term. This ETF’s ROE is only 12.5%, which is a few percent lower than some of the other Vanguard ETFs like Vanguard FTSE Asia Ex Japan Shares Index ETF (ASX: VAE) which are a few percent higher.

Foolish takeaway

Whilst I think this ETF is a decent way to diversify your portfolio into international shares, I’d rather invest in Vanguard FTSE Asia Ex Japan Shares Index, Vanguard MSCI Index International Shares ETF or Vanguard US Total Market Shares Index ETF (ASX: VTS).

If you want to diversify your portfolio it may be a better idea to simply go with an ASX share with overseas earnings. This ASX stock is now expanding its industry-leading operations to Asia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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