Investors looking for a simple way to diversify their portfolios have plenty of Vanguard ETFs to choose from. But the popular Vanguard MSCI Index International Shares ETF (ASX: VGS) and Vanguard Australian Shares High Yield ETF (ASX: VHY) take very different approaches.
VGS offers global exposure and a tilt towards growth, while VHY focuses on high-yielding Australian shares.
So, which Vanguard ETF comes out on top?
Image source: Getty Images
VGS: Global growth in one ETF
This popular Vanguard ETF invests in around 1,300 companies across developed markets worldwide.
The US accounts for the bulk of the portfolio, with exposure to countries including Japan, the UK, Canada, France, Switzerland and Germany.
Its largest holdings include NVIDIA, Apple, and Microsoft. That gives investors exposure to some of the world's biggest technology companies, alongside businesses across healthcare, consumer and industrial sectors.
VGS charges a management fee of 0.18% per year. Over the past 12 months, it has delivered a return of around 7.4%. Over the past 10 years, the Vanguard ETF has returned approximately 184%.
VGS also recently paid a distribution of around 80 cents per unit.
VHY: The dividend-focused alternative
This popular Vanguard ETF takes a completely different approach.
Rather than looking overseas, VHY targets Australian companies with higher forecast dividend yields. Its major holdings include BHP Group Ltd (ASX: BHP), Westpac Banking Corp (ASX: WBC), Rio Tinto Ltd (ASX: RIO) and Telstra Group Ltd (ASX: TLS), alongside other major Australian companies.
For income-focused investors, that's the major attraction. The fund carries a forecast yield of around 4.2%, rising to approximately 5.5% once franking credits are included.
And VHY hasn't exactly been left behind on performance. It delivered a 7.4% return over the past year and a return of 46% over the past decade.
VHY charges a 0.25% management fee, slightly more than VGS. Its portfolio also has significant exposure to the Australian banking and resources sectors, meaning investors aren't getting the same geographic or sector diversification offered by VGS.
Which Vanguard ETF wins?
There isn't an obvious winner for every investor. VHY could be the better fit for investors who prioritise regular dividend income and want exposure to established Australian businesses. The potential benefit of franking credits is another attraction for eligible Australian investors.
VGS, meanwhile, offers something VHY simply can't: global diversification and access to sectors such as technology that have a much smaller presence on the Australian share market.
For an investor focused primarily on long-term capital growth and diversification, I'd give VGS the edge.
But for investors seeking income today, VHY has a compelling proposition.
Ultimately, the better Vanguard ETF depends on whether your priority is global growth or Australian dividend income.
