The Vanguard MSCI Index International Shares ETF (ASX: VGS) is one of the most appealing exchange-traded funds (ETFs) when it comes to capital growth, in my view.
It's an offering from Vanguard, one of the world's leading asset managers, and it aims to provide investments as cheaply as possible because investors are the owners themselves.
The VGS ETF is about investing in the global share market, with a focus on "major developed countries", according to Vanguard.
This portfolio is truly diversified, with close to 1,300 holdings across various markets.
There are multiple countries with a weighting of at least 0.4% in the portfolio, including: the US, Japan, the UK, Canada, France, Switzerland, Germany, the Netherlands, Spain, Sweden, Italy, Hong Kong, Singapore, and Denmark.
However, diversification is not one of the reasons I'm optimistic about this ASX ETF helping us grow our wealth.
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Great portfolio
Great long-term returns don't happen by themselves – the VGS ETF has managed to return an average of 12.7% per year since its inception in November 2014. The portfolio holdings have delivered great returns for the fund.
I like that it automatically invests in large, strong businesses from around the world, whether that's in North America, Europe, or elsewhere.
Businesses that regularly grow earnings will drive their underlying value higher. According to Vanguard, the current earnings growth rate of the fund's portfolio is 21.3%.
When we look at the fund's return on equity (ROE) ratio of 19.6%, that's a great sign. Not only does it show high-quality performance, but it also suggests the level of profit return (growth) that these businesses could achieve on any additional retained earnings in the coming years.
I think the businesses inside the VGS ETF are compelling. We're talking about names like Nvidia, Apple, Alphabet, Microsoft, Amazon, Broadcom, Meta Platforms, Costco, Netflix, Intuitive Surgical, and plenty more.
The businesses in the portfolio are at the forefront of areas such as AI, chips, smartphones, online video, e-commerce, video gaming, device software, social media, online search, driverless cars, and so on.
With a global addressable market, I think they're doing a great job at developing new products and services to help drive profit higher.
Low-cost management fees
Another advantage of this fund is its low management costs compared to those of an active fund manager. The lower the fees, the less of the return investors lose, which means stronger compounding over the long term.
The VGS ETF has an annual management fee of 0.18%. It's not the cheapest ASX ETF, but considering the global nature of its portfolio, I'm very happy with that relatively small amount.
Small dividend yield
The final positive is that it has a low dividend yield.
When dividends are paid, there's a good chance they'll be taxed in the investor's hands, depending on their tax situation. The lower the dividend yield, the less that's lost to tax.
According to Vanguard, the VGS ETF dividend yield was 1.6% as of March 2026.
Capital growth isn't taxed until the underlying asset is sold, so the VGS ETF may see less of its return lost to tax than an ASX ETF with a higher dividend yield (such as ASX share-focused ones, which do have higher dividend yields).
Overall, I believe it's a great investment to own for the long term.
