Diversification. No doubt anyone keen to build a portfolio of ASX shares has come across the term. It's perhaps the simplest way to reduce risk – essentially, by not putting all your eggs in one basket. And I think there's an even simpler way to diversify an ASX portfolio of any size – adding the Vanguard MCSI Index International Shares ETF (ASX: VGS).
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Diversifying with the Vanguard MCSI Index International Shares ETF
There are plenty of ways one can diversify their investments. They might choose to buy shares in a diverse range of ASX shares operating in various sectors or to invest in a variety of asset classes.
Another way to diversify is to invest in different geographies. That's where the Vanguard MCSI Index International Shares ETF can come in handy.
The exchange-traded fund (ETF) boasts nearly $30 million of assets under management and aims to track the return of the MCSI World ex-Australia index.
It allows Aussie investors exposure to more than 1,470 shares listed in 22 international markets such as Japan, the United Kingdom, and Switzerland. Though, the majority of its holdings are listed in the United States.
It's also spread across 11 sectors. Nearly 22% of the fund is invested in tech stocks, while another 14% is in financials shares, and 13% is in healthcare companies.
Its largest holdings include Apple Inc (NASDAQ: AAPL) – 5%, Microsoft Corp (NASDAQ: MSFT) – 3.9%, and Amazon.com Inc (NASDAQ: AMZN) – 1.8%.
Not to mention, it pays dividends
On top of its diversification power, the ETF also offers quarterly dividends.
Indeed, each unit in the VGS ETF has paid $9.19 in dividends over the last five years.
Right now, it offers a 2.1% dividend yield, according to Vanguard. While that's not exactly jaw-dropping, I think it's an added bonus to the fund's diversification power.
Fees and returns
But the ultimate goal of most – if not all – investments are assumably to make money. So, let's consider the nitty gritty of the ETF's costs and returns.
The Vanguard MCSI Index International Shares ETF demands an affordable 0.18% annual management fee.
And it's well and truly returned that over the years. Its unit price has risen 50% over the last five years, outperforming the S&P/ASX 200 Index (ASX: XJO) by 24%.
Looking further back, it's risen a whopping 98% since its inception in 2014. Meanwhile, the benchmark ASX 200 lifted 39%.
Of course, past performance isn't an indication of future performance, and no investment is guaranteed to provide returns.
Still, I think the Vanguard MCSI Index International Shares ETF would be a no-brainer buy if I needed to further diversify my ASX portfolio.
