There are a few reasons why investors might like to consider Vanguard MSCI Index International Shares ETF (ASX: VGS) for a long term investment.
What’s an exchange traded fund (ETF)?
If you don’t know what an ETF is then it could be a smart idea to look at Rask’s free beginner ETF investor course.
An ETF basically lets you invest in a whole bunch of different businesses with a single investment. Very handy if you want to get good diversification, but you don’t want to buy 50, or 100 or 1,000 businesses yourself. In-fact, I’d say buying 1,000 different companies yourself would be a very poor choice for all the brokerage costs alone.
What is VGS ETF?
The idea behind this ETF is that it invests into many businesses that are listed across the world in countries like the US, the UK and Canada. Most of the major developed countries are represented within this portfolio of diversified companies.
There are actually a lot of different holdings within the VGS ETF. At the end of January 2021, it had 1,528 positions. Those holdings were spread across different sectors including IT (22.6% of the portfolio), health care (13.3%), consumer discretionary (12.3%), financials (12.2%), industrials (10.4%), communication services (9%) and consumer staples (7.4%). The other sectors – materials, utilities, energy and real estate – all have a position of less than 5%.
What shares does it own?
At the end of January 2021, its biggest holdings were many of the world’s most recognisable names including Apple, Microsoft, Amazon, Alphabet, Facebook, Tesla, Johnson & Johnson, JPMorgan Chase, Visa and Nestle.
Of course, there are plenty of other businesses including Berkshire Hathaway, Proctor & Gamble, Walt Disney, Home Depot, MasterCard, PayPal, Adobe, Netflix, ASML, Salesforce and Intel.
How much does it cost?
One of the most important things to consider about ETFs is the annual cost of what they charge because that reduces the total return for investors.
It has an annual management fee of 0.18% per year. This isn’t the cheapest on the ASX, but it’s one of the cheapest and a lot cheaper than many active fund managers.
What have the returns been like?
If you think that shares have returned an average of 10% per annum over the long term, the VGS ETF has outperformed that in recent years. The net returns over the last three years has been 10.5% per annum, over the last five years it has been 11.7% per annum and since inception in November 2014 it has returned an average of 11.8% per annum.
Those are decent returns, though there have been other diversified ETFs that have produced stronger returns.
Summary thoughts
It’s a good ETF, the type of investment you could own for 20 years and not need to do anything with it. However, for my own portfolio, I’d rather try to find investments that have even higher quality holdings, on average.
