Is the Vanguard MSCI Index International Shares ETF (ASX: VGS) the best long-term investment?
A quick overview of Vanguard
Vanguard is one of the world's leading providers of exchange-traded funds (ETFs). It aims to provide investment options at a low cost. The benefit of lower investment costs is that it increases the net returns for investors. Fees are one of the main factors that cause some fund managers' net returns to be lower than the index over time. Not only do fund managers charge annual management fees but they also charge performance fees when they outperform.
The benefit of investing in an ETF is that you can invest in many businesses (or other assets) through a single investment. It's simple and easy investing.
Vanguard MSCI Index International Shares ETF
The aim of this particular ETF is to provide exposure to many of the world's largest companies listed in major developed countries outside of Australia.
Holdings
The ETF is actually invested in around 1,550 holdings. That's excellent diversification considering all of the quality companies that it's invested in.
I'm sure you've heard of many, if not all, of its largest holdings: Apple, Microsoft, Amazon, Alphabet, Facebook, Johnson & Johnson, Nestle, Visa, Proctor & Gamble and JPMorgan Chase & Co.
It also owns plenty of other big, quality businesses you've probably heard of like Mastercard, Berkshire Hathaway, Nvidia, Paypal, Netflix, Adobe, Tesla, Walt Disney, Intel, Bank of America, Coca Cola, PepsiCo, Walmart, McDonalds and so on.
As you can tell from many of the names mentioned, US-listed businesses makes up the majority of this ETF. Indeed, the US makes up just over two thirds of Vanguard MSCI Index International Shares ETF.
But just because they're listed in the US doesn't mean the underlying earnings are from the US. Apple sells phones across the world. Facebook and Alphabet's Google advertise across the world. Many of the holdings are truly global businesses.
In terms of industry diversification, I think it has an attractive allocation across different sectors. Around 22% is invested in IT businesses. It's attractive to have the biggest allocation here because technology is the sector that's delivering the most growth.
Other sectors that get an allocation of more than 10% are: healthcare, financials, consumer discretionary and industrials.
Fees
Vanguard charges an annual management fee of 0.18% per annum for Vanguard MSCI Index International Shares ETF.
That fee is a lot cheaper than most Australian fund managers that invest into overseas shares. However, it's not the cheapest ETF out there. For example, Vanguard U.S. Total Market Shares Index ETF (ASX: VTS) has an annual management fee of just 0.03%. Fees are important, but it should be the net returns that should be the most important factor.
Returns
Vanguard MSCI Index International Shares ETF has suffered from the COVID-19 selloff. Industries like banks and airlines are still a long way below their peaks.
Over the past three years the ETF has returned an average of 11.7% per annum and over the past five years it has returned an average of 8.2% per annum. Not bad, but there have been other ETFs that have done a lot better.
Is Vanguard MSCI Index International Shares ETF a buy today?
The Australian dollar has strengthened against the US dollar, so it's a better time to buy this ETF than in prior months considering over two thirds of the ETF is made up of US shares.
I think it's the type of ETF that you could own as your only investment for your whole life. It's very diversified, has low costs, it has a decent starting dividend yield of 2.25% and is likely to generate reasonable long-term capital growth.
If ETF investing was my focus then I'd be happy to invest in the ETF today. However, I'd also be interested in looking into BetaShares Global Quality Leaders ETF (ASX: QLTY) or Betashares Global Sustainability Leaders ETF (ASX: ETHI).
