Can Vanguard MSCI Index International Shares ETF (ASX: VGS) be a really great investment idea for diversification purposes?
Firstly, let’s look at why Vanguard is an attractive fund provider. Its aim is to provide leading, low-cost investment products. Vanguard’s ownership structure aligns its interests with investors. The investors are the owners of the business, profits are ‘shared’ in the shape of lower management fees. It’s why Vanguard has some of the lowest management fees in the world.
What’s the Vanguard MSCI Index International Shares ETF?
In Vanguard’s words, the exchange-traded fund (ETF) seeks to track the return of the MSCI World Ex-Australia Index. It provides exposure to many of the world’s largest companies listed in major developed countries.
There are few investments on the ASX that offer the level of global diversification that this ETF does.
It gives more than 1% exposure to ten countries. As you might expect, the largest country weightings are the US (67.6%), Japan (7.9%), the UK (4.4%), France (3.5%), Canada (3.2%), Switzerland (2.9%) and Germany (2.9%).
But that’s just where the business is listed. Apple and Microsoft might be classified as US businesses, however they generate revenue from most of the world. You can make that point about most of the top ten holdings in the ETF’s portfolio:
Apple, Microsoft, Amazon.com, Alphabet, Facebook, Tesla, JPMorgan Chase, Johnson & Johnson, Visa and Walt Disney. Those positions amount to 17.3% of the total portfolio.
But there’s more to the portfolio than just those 10 names. It actually had 1,530 holdings spread across those major developed countries. There are plenty of large non-US shares in there such as Nestle, ASML, Roche, Novartis, LVMH, Toyota, AIA, SoftBank and Shopify.
Looking at the sector allocations, information technology has the largest position with a 22.3% weighting. Financials (13.1%), health care (12.6%), consumer discretionary (12.2%) and industrials (10.6%) are the other sectors with weightings of more than 10%.
The Vanguard MSCI Index International Shares ETF has a low management fee of 0.18%, which is a lot cheaper than most active fund managers that you’d find based in Australia, particularly ones that invest in global shares.
The ETF’s inception date was November 2014. Since then it has delivered a net return of 11.9% per annum. Its other long-term performance returns have also been double digits. Over the last three years it has delivered an average return of 11.2% per annum and over the last five years it has delivered an average return of 12.4% per annum.
Vanguard MSCI Index International Shares ETF had a price/earnings ratio of 25.6x at 28 February 2021, with a earnings growth rate of 11.8%. The dividend yield had reduced to 1.8%.
However, it also had a return on equity (ROE) ratio of 15.9%.