On paper, the Vanguard MSCI Index International Shares ETF (ASX: VGS) might look like one of the most diversified exchange-traded funds (ETFs) on the ASX. VGS holds close to 1,500 individual shares within its ETF portfolio. Those near-1,500 companies hail from more than 20 countries. These include Canada, the United Kingdom, Singapore, Japan, Hong Kong, and most of Europe. But also the United States.
But digging deeper, it appears that VGS's diversification could arguably be described as shallow at best.
Yes, this ETF holds close to 1,500 shares. But it is also a top-heavy ETF. Although VGS represents the share markets of more than 20 countries, the United States alone makes up just under 70% of its entire portfolio.
Its largest ten companies by market capitalisation and portfolio weighting are all American too. Here's a list of VGS's top ten holdings and their weightings in this ETF (as of 28 February):
- Apple Inc (NASDAQ: AAPL) with an ETF weighting of 4.82%
- Microsoft Corporation (NASDAQ: MSFT) with a weighting of 3.79%
- Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) with a weighting of 2.82%
- Amazon.com Inc (NASDAQ: AMZN) with a weighting of 2.49%
- Tesla Inc (NASDAQ: TSLA) with a weighting of 1.32%
- NVIDIA Corporation (NASDAQ: NVDA) with a weighting of 1.08%
- Meta Platforms Inc (NASDAQ: FB) with a weighting of 0.89%
- UnitedHealth Group Inc (NYSE: UNH) with a weighting of 0.8%
- Johnson & Johnson (NYSE: JNJ) with a weighting of 0.77%
- Berkshire Hathaway Inc (NYSE: BRK.B) with a weighting of 0.75%
So as you can see, VGS is dominated by the big US tech companies. In fact, if we put Apple, Alphabet (owner of Google), Amazon, and Meta (formerly known as Facebook) together, we get a total weighting of approximately 11.02%. Throw in Netflix Inc (NASDAQ: NFLX), the final stock in the old 'FAANG' group, and we get 11.33%.
FAANG, FAANG+ dominate VGS ETF
So 11.33% of VGS's entire portfolio of almost 1,500 shares is concentrated in the FAANG stocks.
Going further, Tesla, NVIDIA, and Microsoft are often added to the traditional FAANG grouping in what investors describe as 'FAANG+'.
If we include these FAANG+ stocks, we get to a total weighting of 17.53%.
So really, close to $1 in every $5 invested in the Vanguard MSCI Index International Shares ETF is going to go to the FAANG+ stocks. Now there's nothing inherently wrong with that, of course. FAANG+ shares arguably represent some of the strongest and most dominant companies on the planet.
However, it does mean that VGS isn't as diversified an ETF as it might initially appear if one just looks at its total portfolio and raw geographic exposure. The Vanguard MSCI Index International Shares ETF charges a management fee of 0.18% per annum.
