The Vanguard MSCI Index International Shares ETF (ASX: VGS) is an exchange-traded fund (ETF) that offers investors a number of positive reasons to own it.
There are hundreds of ETFs out there to choose from, with more being launched every year. But this particular ETF is interesting to me because I think it offers pretty much everything that investors could want.
Sure, it may not be the best-performing ETF, but here are a number of reasons why the Vanguard MSCI Index International Shares ETF could do well from here.
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Low fees
One of the main advantages of an index-based ETF is that it's very cheap to run, allowing that low cost to be passed onto individual investors. There is a lot of competition in the ETF space to offer low fees, so it's a bonus for investors to pay as low costs as possible.
Fees reduce the net returns of an investment, so whatever the gross return is, we'd want to see as much of that convert to a net return as possible. High-fee investment options can produce stronger returns, but it makes it easier for a low-fee fund to outperform.
The Vanguard MSCI Index International Shares ETF has an annual management fee of 0.18%. That's higher than some of its peers but lower than many other ETFs.
Total returns
Of course, we shouldn't use past performance as a reliable indicator of future performance. But, I think it gives a useful understanding of the investment.
Since the start of the ETF in November 2014, the Vanguard MSCI Index International Shares ETF has produced an average return per annum of around 11% up to 28 February 2023. That's not a Warren Buffett level of returns, but it would have enabled solid compounding of wealth for an investor.
While some of that came in the form of dividends, more than 8% of that per-annum figure came in the form of capital growth.
That growth has come about by being invested in some of the world's largest and strongest businesses like Apple, Microsoft, Alphabet, Amazon.com, and Nvidia.
Diversification
I believe this ETF offers investors ample diversification. It's generally a good idea not to have all of one's eggs in one basket. Certainly, this ETF has many baskets of different varieties.
In terms of the number of businesses the fund holds, it owns more than 1,470 names in its portfolio.
Those businesses come from a number of different countries including the US, Japan, the UK, France, Canada, Switzerland, Germany, the Netherlands, Sweden, Denmark, Spain, and so on. Many major developed countries are represented.
It's also diversified across sectors. While its largest allocation (21.6%) is to the growth-focused IT sector, there are a number of other sectors with a weighting of at least 5%: financials (14.2%), healthcare (13.4%), consumer discretionary (10.9%), industrials (10.9%), consumer staples (7.6%), communication services (6.7%), and energy (5.2%).
Dividend income
I wouldn't think of Vanguard MSCI Index International Shares ETF as a top idea for passive income. But, the yield could be considered good enough to satisfy investors looking for a combination of growth and dividends.
According to Vanguard, the ETF currently has a dividend yield of 2.1%. While that's not a great yield these days with interest rates now a lot higher, it could be just enough to tick that income box.
