The Vanguard MSCI Index International Shares ETF (ASX: VGS) is one of the most appealing exchange-traded funds (ETFs) around for various reasons.
This fund's main purpose is to give exposure to the global share market; it's focused on companies from major developed markets.
Before getting to the main positives, I'll note that the VGS ETF costs very little for investors to invest in it. Its annual management fee is just 0.18%, which is very low, though it's not the lowest of every single ASX ETF available to Aussies.
The low fees are not the only reason I'd choose to invest in this fund; there are a few other factors.
Excellent diversification
This fund is a great way for Aussies to gain exposure to the global share market if their current asset base is too heavily focused on Australia.
It enables us to invest in the MSCI World ex-Australia Index, which includes many of the world's largest companies listed in major developed countries.
At the end of June 2025, it had 1,286 holdings in the portfolio, which is a huge number and is more than enough diversification.
The geographic exposure is also very pleasing. While the fund does have a significant allocation to US shares (73.1%), it's not surprising because the US is home to a substantial number of global leaders. Those businesses make earnings from across the world, so they can provide diversification.
Other countries with a weighting of at least 0.4% in the portfolio include Japan, the UK, Canada, France, Germany, Switzerland, the Netherlands, Sweden, Spain, Italy, Denmark, Hong Kong and Singapore.
Finally, sector diversification is also pleasing and reduces risks. Five sectors have a weighting of at least 9.5%: IT (26.6%), financials (16.6%), industrials (11.5%), consumer discretionary (10.2%), and healthcare (9.5%).
Great businesses with strong growth potential
The appeal of the VGS ETF isn't just about the diversification, but it's also about the returns. Indeed, making returns is probably the most important thing.
Many of the businesses in this portfolio have already demonstrated a track record of growing profit and delivering returns over the long term. Great businesses tend to keep winning over time because of their competitive advantages, such as brand power and leading products/services.
Some of the largest holdings include Nvidia, Microsoft, Apple, Amazon, Alphabet and Meta Platforms.
These businesses are among the global leaders in areas such as AI, high-performance computing, smartphones, online video, e-commerce, cloud computing, digital advertising, social media, gaming, and so on.
The portfolio's earnings growth has been very pleasing, which is a key driver of investment returns. According to Vanguard, the earnings growth rate of the VGS ETF has been 20.2%.
The VGS ETF portfolio of businesses has had excellent investment performance. In the ten years to June 2025, it returned an average of 12.6% per year, and in the last five years, it delivered an average return per year of 15.8%.
High return on equity
One of the most important factors that is a sign of quality is the high return on equity (ROE). This means the businesses are earning a high level of profit for how much shareholder money is retained within each company.
A high ROE also suggests that the businesses may be able to generate a pleasing level of return on retained money within the business, assuming they haven't run out of places to invest/spend cash usefully.
According to Vanguard, the VGS ETF has a ROE of 19.6%.
There's a lot to like about this ASX ETF and I'm optimistic about what it can achieve in the coming years.
