The Vanguard MSCI Index International Shares ETF (ASX: VGS) is one of the most popular exchange-traded funds (ETFs) on the ASX. It is also one of the most diversified single investments that an ASX investor can put their money into.
This fund is built around close to 1,500 individual shares. These shares hail from more than 20 different countries from around the world. None of which include Australia. As such, the VGS ETF is one of the most popular ways to diversify an ASX share portfolio in Australia.
But should every ASX share portfolio have exposure to VGS units?
Should the Vanguard VGS ETF be a part of every ASX share portfolio?
Well, that's a tricky question to answer. Most ASX investors' portfolios are highly biased towards local shares. That is not surprising, with this 'local bias' phenomenon common amongst most countries. The unique benefits that ASX shares offer help in this regard too – it's only ASX shares that pay Australian tax that can offer franking credits, for example.
But we all know the benefits of diversification. And it makes sense to not have all of one's investing eggs locked up in the Australian economy.
Further, the ASX is home to many fine companies. But we don't really have any names that command a truly global impact. Think of the dominance of companies like Apple, Amazon or Google-owner Alphabet. Most people on the planet would have heard of at least one of those names.
But good luck finding someone from Japan, America, South America or Europe that's heard of Commonwealth Bank of Australia (ASX: CBA) or Woolworths Group Ltd (ASX: WOW).
So in this regard, VGS units can be helpful to an ASX portfolio. If you only own ASX blue-chip shares, then buying VGS units immediately gives your portfolio exposure to the likes of Apple, Amazon, and Alphabet. You also get some interest in other global giants like NVIDIA, Tesla, Nestle and Toyota.
However, the Vanguard International Shares ETF is dominated by US companies. In fact, more than 70% of its weighted portfolio is housed in the US. So if you already have exposure to US shares, perhaps via another ETF like the iShares S&P 500 ETF (ASX: IVV) or the BetaShares NASDAQ 100 ETF (ASX: NDQ), then adding VGS to your share portfolio is unlikely to change too much.
Foolish takeaway
As such, VGS can be a useful investment to add some international diversification to one's ASX share portfolio if that diversification is lacking. But I wouldn't go as far as to say that it should be a part of every investor's holdings.
