The Vanguard MSCI Index International Shares ETF (ASX: VGS) has a lot going for it. As the name suggests, it allows Aussies to invest in international shares.
The ASX share market is a wonderful stock market, but it only accounts for around 2% of the global share market. It can be a wise idea to gain exposure to overseas businesses because most of the world's best businesses are outside of Australia.
What makes Vanguard such a good provider of ASX ETFs? It keeps management costs low. As its assets under management (AUM) increase over time, its fees for investors can decrease. The owners of Vanguard are the investors themselves, it passes on profits via those low costs.
There are quite a few different funds to choose from, including:
Vanguard Australian Shares Index ETF (ASX: VAS)
Vanguard US Total Market Shares Index ETF (ASX: VTS)
Vanguard Australian Shares High Yield ETF (ASX: VHY)
Vanguard All-World ex-US Shares Index ETF (ASX: VEU)
Vanguard FTSE Asia Ex-Japan Shares Index ETF (ASX: VAE)
Vanguard Australian Property Securities Index ETF (ASX: VAP)
Vanguard Australian Fixed Interest Index ETF (ASX: VAF)
Vanguard Diversified High Growth Index ETF (ASX: VDHG)
What makes the VGS ETF the right option out of all of these? Below are my reasons.
Shares tend to perform stronger than other assets
Some Vanguard ETFs aren't exposed 100% to shares, such as the property and bond funds. Some multi-asset ETFs also own some non-share assets.
With the power of business growth and compounding, I think the all-share ETFs can provide stronger returns.
The VGS ETF has returned an average of 13.8% per year since its inception in November 2014. I think it's unlikely that bonds or property could deliver those sorts of returns over a multi-year time period.
Global diversification
Many of the Vanguard ETFs are focused on one country or one region, such as the ASX, the US share market, the Asian share market and so on.
The VGS ETF is invested in over 1,300 holdings from multiple countries. That includes: the US, Japan, the UK, Canada, France, Switzerland, Germany, the Netherlands, Sweden, Spain, Italy, Denmark, Hong Kong, Singapore, Finland, Israel, Belgium, Norway and Ireland.
Sector allocation is also a factor that adds diversification for the VGS ETF. The VAS ETF is largely focused on banking and mining. The Vanguard MSCI Index International Shares ETF has a weighting of at least 10% to five sectors: IT (25.1%), financials (16.6%), healthcare (10.9%), industrials (10.8%) and consumer discretionary (10.6%).
Excellent companies
There are a number of wonderful businesses in different countries, but owning the VGS ETF means investors get to have exposure to many of the world's best businesses such as Apple, Nvidia, Microsoft, Amazon.com, Alphabet, Meta Platforms, Broadcom, Tesla, JPMorgan Chase and Eli Lilly. It can give exposure to businesses from any developed country, such as Europe, Asia or North America.
This fund has a very high return on equity (ROE) of 19.6%, which shows how much profit businesses are making on the shareholder money retained within the company. The higher the ROE is, the better the business supposedly is. It also suggests the business can make strong profits on further profits retained in the future.
Overall, I think the VGS ETF offers excellent geographic diversification, with strong businesses and good ROE. If I could only own one Vanguard ETF, I'd choose the VGS ETF.
