As we may all be aware, 2021 has been a pretty solid year for investing on the ASX share market. Over the year to date in 2021, the S&P/ASX 200 Index (ASX: XJO) has gained close to 10%. Considering the added bonuses of dividends and franking, that's an objectively fine performance from ASX shares for the year (touch wood). But what of the Vanguard MSCI Index International Shares ETF (ASX: VGS)?
Well, it appears VGS was not to be outdone by the ASX 200. VGS units have, year to date, returned just over 27% to its investors since the start of January. But that's looking backwards. What is the outlook for VGS units going into 2022? Can investors expect another year of near-30% returns from this humble index fund?
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Where did VGS's 2021 gains come from?
Well, to answer that as best we can, let's dig into how this exchange-traded fund (ETF) is structured. So VGS is one of the widest and most diversified ETFs on the ASX. It covers an astonishing 1,502 individual companies, spread across more than 20 countries. These advanced economies include Canada, Japan, Europe, Singapore, Hong Kong and the United Kingdom. But are mostly dominated by the United States, which commands nearly 70% of this ETF's weighting.
The US is also heavily reflected in VGS's top holdings. AS of 31 October, these were:
- Apple Inc (NASDAQ: AAPL)
- Microsoft Corp (NASDAQ: MSFT)
- Amazon.com Inc (NASDAQ: AMZN)
- Tesla Inc (NASDAQ: TSLA)
- Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL)
- Meta Platforms Inc (NASDAQ: FB)
- NVIDIA Corp (NASDAQ: NVDA)
- JPMorganChase & Co Inc (NYSE: JPM)
- UnitedHeath Group Inc (NYSE: UNH)
- Johnson & Johnson (NYSE: JNJ)
They're all US companies, together making up close to 20% of VGS's total weighting despite its 1,502 individual holdings. And all of these top 10 holdings have enjoyed a phenomenal year in 2021 so far. For example, Apple shares are up 25.8% in 2021 so far. Microsoft shares are up almost 56%, while Amazon has had a far more muted year with a 6.4% gain. Tesla has gained 32.4%, while Alphabet Class A shares have put on nearly 69%.
As such, it's not hard to see why VGS itself has had such a strong year thus far. It's all helped along by the falling Aussie dollar in 2021 too, no doubt.
What does 2022 hold for the Vanguard MSCI Index International Shares ETF?
So for 2022 to be another top year for VGS units, we would probably have to see another strong showing for these top US shares, especially those in the top echelon (Apple, Microsoft etc.). A further drop in the value of the Aussie dollar against the US dollar would also help.
So only time will tell if 2022 ends up being another great year to hold VGS units. But keep your eye on those top holdings if you want to keep track.
The Vanguard MSCI Index International Shares ETF charges a management fee of 0.18% per annum.
