The Vanguard MSCI Index International Shares ETF (ASX: VGS) is one of the most popular exchange-traded funds (ETFs) on the ASX for good reason, which I'll get into below.
But, the fund does also have some downside which investors should be aware of.
Every investment has its positives and negatives of course, but if the positives outweigh the negatives, I think it's a good time to invest.
I'll share my view on the VGS ETF and whether I think it's a buy this month.
Positives
One of the biggest positives of this ETF is the diversification it provides. With this fund, investors gain exposure to a global portfolio of businesses.
There are more than 1,280 holdings in the portfolio. This provides significant diversification through a single investment. Those companies come from a variety of countries including the US, Japan, the UK, Canada, France, Germany, Switzerland, the Netherlands, Sweden and Spain.
If the next 'big thing' that comes along is listed in a Western country, we should be able to benefit from its growth and ongoing performance within a fund like the VGS ETF.
The diversification continues with the sector allocation, too. There are five sectors that have an approximate weighting of 10% – IT (25.4%), financials (16.8%), industrials (11.6%), consumer discretionary (10.5%) and healthcare (9.8%). Technology is usually the sector with the best margins and strong growth rate, so I'm pleased it has the biggest weighting.
Some of the great businesses in the portfolio include Nvidia, Microsoft, Apple, Amazon.com, Alphabet, Meta Platforms, Broadcom, Tesla, JPMorgan Chase and Berkshire Hathaway.
Another of the many great things about this fund is its exposure to numerous excellent businesses with a very strong return on equity (ROE), which indicates how much profit the business generates compared to the amount of shareholder money it retains. The higher the ROE, the higher the quality of the business. It also suggests businesses can generate high returns on money reinvested inside the company, unlocking further bottom-line growth and shareholder returns.
The last positive I'll point to is that both the Reserve Bank of Australia (RBA) and the US Federal Reserve could be approaching further interest rate cuts with the inflation picture remaining under control. Rate cuts could provide a further tailwind for the valuation.
I'm not surprised VGS ETF has returned an average of 13.3% per year since inception in November 2014. This has been thanks to the quality of the underlying businesses, though past performance is not a guarantee of future performance.
I think this is a great investment to benefit from the long-term growth of the international share market as the underlying businesses aim to continue growing their earnings.
Negatives
While investments like this one provide exposure to a mixture of businesses, it is possible for an ETF to become expensive as well.
In the last year, the Vanguard MSCI Index International Shares ETF unit price has risen more than 14%. According to Vanguard, at the end of May 2025, it had a price/earnings (P/E) ratio of 22.8x. Ideally, I'd prefer to see the VGS ETF unit price being driven by earnings growth from here, rather than a further increase in the P/E ratio.
I'm comfortable with how much of the fund is invested in the 'magnificent 7' US tech giants, but as they become larger, I would imagine their earnings growth rate will slow due to their already huge size. So, I'm not expecting the next ten years to be as good as the last ten.
Also, I should note that more than 70% of the portfolio is invested in US shares (though they do have global earnings). For the past decade, that has almost entirely been a big positive, but unpredictability in the US (for example, tariffs) could make that exposure less attractive than it used to be for some investors.
I'd still call the VGS ETF a good buy today by some margin, but it's not quite as attractively valued as it was in April 2025 or during the peak inflation years of 2022 and 2023.
