Why I think it’s a good time to buy the Vanguard MSCI Index International Shares ETF (VGS)

I think the Vanguard International Shares ETF is looking better value after all this volatility.

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Key points

  • It could be a good time to look at the Vanguard MSCI Index International Shares ETF, in my opinion
  • The VGS ETF has declined by 16% in value since the start of 2022
  • I think it has a useful weighting to quality businesses

After all of this volatility, I think now is a good time to buy the Vanguard MSCI Index International Shares ETF (ASX: VGS).

Inflation and central bank interest rate rises are getting a lot of investor attention right now. It could be a good time to consider a diversified, low-cost exchange-traded fund (ETF).

Amid all of the uncertainty, the global share market has been falling. The VGS ETF has fallen by 16% since the start of the year, including the effect of the decline of the Australian dollar.

What is the Vanguard MSCI Index International Shares ETF?

This ETF is about providing access to invest in many of the world’s largest companies.

It’s invested in businesses across the world. Geographically, it is diverse.

The United States, Japan, the United Kingdom, Canada, France, Switzerland, Germany, the Netherlands, Sweden, Hong Kong, Denmark, Spain and Italy each has an allocation of at least 0.5%

There is a total of almost 1,500 holdings in the ETF, so it looks very diversified in my opinion.

I’d also like to point out that it’s diversified across different sectors. There are five sectors that have a double-digit weighting in the portfolio – IT (22.1%), healthcare (13.4%), financials (13.1%), consumer discretionary (11.2%) and consumer staples (7.8%).

So that’s what the ETF is about. But why is it attractive? Here are some key points that I like about it.

Low fees

One of the main positives about the Vanguard MSCI Index International Shares ETF is that it has an annual management fee of 0.18%, which is low and attractive to me.

When the management fee is low, it means more of the net returns are left in the portfolio for investors. That can mean stronger compounding over the longer term.

The fund provider Vanguard aims to provide its investment funds for investors as cheap as it can. There are no performance fees with this ETF either.

Strong holdings

While it does have a large number of positions, the companies with the largest weightings are some of the strongest in the world.

I think one of the attractive features of the VGS ETF is that it has a good allocation to quality businesses. At the end of April 2022, these are some of the biggest positions in the portfolio: Apple, Microsoft, Alphabet, Amazon, Johnson & Johnson, Nvidia and Berkshire Hathaway.

Prior to the recent decline in the last few months, the VGS ETF had produced solid returns in my opinion. Past performance is not a reliable indicator of future performance, but even after the drop, the Vanguard International Shares ETF returned an average of 11.4% per annum in the five years to April 2022, according to Vanguard.

I think the quality of the ETF can also be seen with the return on equity (ROE) ratio of 18.3%, according to Vanguard.

Foolish takeaway

I think that the VGS ETF looks more attractive after this decline. It’s full of good companies which are now, as a whole, cheaper. If I were looking to buy it, this could be a good time.

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. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Amazon, Apple, Berkshire Hathaway (B shares), Microsoft, Nvidia, 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), 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 Scott Phillips.

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