Vanguard MSCI Index International Shares ETF (ASX: VGS) might be one of the best passive investments to think about for investors wanting a simple investment strategy.
What do investors need to know about VGS?
This is an exchange-traded fund (ETF). That simply means that it’s a fund of shares that can be bought on the ASX, rather than applying to the fund manager for units/shares of that fund.
If investors are looking for ETFs, then Vanguard is a very attractive asset manager. It tries to make the funds management costs as low as possible. That keeps more of the money in investors’ pockets/portfolios. The annual management fee is just 0.18%. Many active fund managers charge 1% or more.
As the name might suggests, it provides investors with exposure to international shares. That means it could be a way to diversify away from ASX shares.
In fact, at the end of May 2021, it had 1,507 holdings that are spread across most of the western world’s key economic countries. We’re talking about countries like the US, Japan, the UK, Canada, France, Germany and Switzerland.
Is Vanguard MSCI Index International Shares ETF a really good passive investment option?
There are some really great businesses in the portfolio like Apple, Microsoft, Alphabet, Nvidia and Berkshire Hathaway.
There is probably every major western listed blue chip in the portfolio.
However, it’s also important to note that there are quite a few ordinary businesses in the portfolio. Whilst it is invested in some of the world’s best tech businesses, there are also some low-earning financial and resource businesses in there too.
The returns of Vanguard MSCI Index International Shares ETF have been decent but not spectacular. Over the last five years, it has produced an average return per annum of 12.9%. Of course, the tech names in the portfolio have performed better than that – but others haven’t done as well, bringing down the returns.
The influence of the tech shares on the overall portfolio’s valuation can be seen with its price/earnings ratio (p/e ratio
) which was almost 24 at the end of May 2021.
I think VGS ETF is a really solid option to consider. It gives good diversification, has produced decent long-term returns and underlying earnings growth.
However, there may be other ASX growth shares that could produce better returns. There are also some ETFs that have, on average, higher quality holdings.
