Last month was not a pretty one for ASX shares and the S&P/ASX 200 Index (ASX: XJO). The ASX 200 ended up losing 3% of its value over May, falling from 7,309.2 points at the end of April to finish up at just 7,091.3 points by Wednesday evening.
This means that any exchange-traded fund (ETF) or index fund in general, that tracks the ASX 200 index would have delivered a near-identical performance. But let's talk about the Vanguard MSCI Index International Shares ETF (ASX: VGS).
This index fund instead represents more than 1,500 individual shares hailing from more than 20 advanced economies around the world. But Australia is not one of them. In fact, the VGS ETF has absolutely nothing to do with the ASX 200 index, or indeed any ASX share at all. Its only real tie to Australia is the fact that it is listed on our stock exchange and dominated in Australian dollars.
Yes, this ETF holds companies that hail from Canada to the United Kingdom, from France to Hong Kong and from Denmark to Israel. But the vast majority of its holdings come from the US markets.
So how did the Vanguard International Shares ETF fare over May? Well, VGS units started the month at $101.86 each. But by Wednesday's session, this ETF had finished up May at $103.93. Not only is that a gain of 2.03%, but it also represents an outperformance of the ASX 200 of just over 5%.
So why did this international ETF do so well over May when our own ASX travelled so poorly?
Why did the Vanguard International Shares ETF smash the ASX 200 in May?
Well, there are two factors we can point to to explain this situation. Firstly, May was a month that saw many of the US tech giants that form the lion's share of this ETF's portfolio swell in value.
Top holding Apple Inc (NASDAQ: AAPL) rose by more than 4.4% over the month just gone. Microsoft Corporation (NASDAQ: MSFT) did even better with a near-7% rise, while Amazon.com Inc (NASDAQ: AMZN) shot up by a whopping 14.35%. And NVIDIA Corporation (NASDAQ: NVDA) pipped everyone with its eye-watering 36.34% gain.
Together, these four companies account for more than 12% of this ETF's weighted portfolio. So that's where at least some of these gains come from.
But the other factor is the Australian dollar.
Over May, the Aussie dollar had a bit of a shocker. It was asking for around 67 US cents at the start of the month. But this week saw the Aussie hit a six-month low of under 65 US cents. Since most of the underlying assets in this ETF's portfolio are priced in US dollars, they are worth more in our currency if the US dollar becomes more valuable against our own dollar. And that's what's happened this month.
So it's highly likely that it's for these two reasons that the Vanguard International Shares ETF had such a positive month in the face of a weak performance from ASX shares. Let's now see what happens in June.
