Is the Vanguard International Shares ETF just a big bet on the FANG stocks?

VGS is a popular ASX ETF. But it really a diversified investment? Let’s check it out…

| More on:
A woman sits at her computer in deep contemplation with her hand to her chin and seriously considering information she is receiving from the screen of her laptop regarding the Xero share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • VGS is a popular ETF with ASX investors
  • This fund invests in close to 1,500 individual companies across more than 20 countries
  • But VGS might not be as diversified as those statistics imply

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):

  1. Apple Inc (NASDAQ: AAPL) with an ETF weighting of 4.82%
  2. Microsoft Corporation (NASDAQ: MSFT) with a weighting of 3.79%
  3. Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) with a weighting of 2.82%
  4. Amazon.com Inc (NASDAQ: AMZN) with a weighting of 2.49%
  5. Tesla Inc (NASDAQ: TSLA) with a weighting of 1.32%
  6. NVIDIA Corporation (NASDAQ: NVDA) with a weighting of 1.08%
  7. Meta Platforms Inc (NASDAQ: FB) with a weighting of 0.89%
  8. UnitedHealth Group Inc (NYSE: UNH) with a weighting of 0.8%
  9. Johnson & Johnson (NYSE: JNJ) with a weighting of 0.77%
  10. 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.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Motley Fool contributor Sebastian Bowen owns Alphabet (A shares), Amazon, Apple, Johnson & Johnson, Meta Platforms, Inc., Microsoft, Nvidia, and Tesla. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Alphabet (A shares), Amazon, Apple, Berkshire Hathaway (B shares), Meta Platforms, Inc., Microsoft, Netflix, Nvidia, Tesla, and Vanguard MSCI Index International Shares ETF. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Alphabet (C shares) and Johnson & Johnson and has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Berkshire Hathaway (B shares), Meta Platforms, Inc., Netflix, Nvidia, and Vanguard MSCI Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ETFs

ETF written on cubes sitting on piles of coins.
ETFs

Here’s why the iShares S&P 500 ETF (IVV) has climbed 7% in a month

It’s been a solid few weeks for US shares. What’s happening?

Read more »

A cute young girl wears a straw hat and has a backpack strapped on her back as she holds a globe in her hand with a cheeky smile on her face.
ETFs

2 reasons to consider buying the Vanguard International Shares ETF (VGS) right now

What's to like about this popular ETF from Vanguard?

Read more »

A man sits bolt upright watching something intently on his television.
ETFs

2 quality ETFs for ASX investors to buy in August

Here are two top ETFs to buy...

Read more »

The letters ETF sit in orange on top of a chart with a magnifying glass held over the top of it
ETFs

3 top ETFs for ASX investors to buy next week

These highly rated ETFs could be in the buy zone...

Read more »

ETF written in blue with a man and woman sitting on their laptops.
ETFs

2 exciting ETFs for ASX investors to buy today

Here are a couple of highly rated ETFs...

Read more »

Disappointed man with his head on his hand looking at a falling share price his a laptop.
ETFs

Why the BetaShares ASIA ETF is 50% below its former glory

Why has this tech-heavy ETF had such an awful run of late?

Read more »

ETFs

Here’s why the BetaShares Nasdaq 100 ETF (NDQ) is outperforming the ASX today

This exchange-traded fund is putting in a strong showing today. Let's check it out...

Read more »

A woman holds up hands to compare two things with question marks above her hands.
ETFs

Why I prefer AFIC shares to an ASX 200 index fund today

Love ETFs? Here's an alternative that I think all investors should consider.

Read more »