Vanguard MSCI Index International Shares ETF (ASX: VGS) is a good way to invest. But is it one of the best ways to invest in global shares?
What is the VGS ETF?
It’s an exchange-traded fund (ETF) that essentially gets investors exposure to the share markets of the ‘developed’ world. Not ’emerging markets’.
By that, it means businesses like the US, Japan, the UK, France, Canada, Switzerland, Germany, Netherlands, Sweden, Denmark, Italy and so on.
There’s actually a total of around 1,500 businesses in the portfolio across all of those different countries.
Why it could be a great way to invest in global shares
It’s really hard to know what to invest in, unless you’re someone that studies shares a lot. Instead of trying to pick a few names from thousands, why not just buy the whole market of shares?
Not only does this ETF give excellent diversification across different countries, but it’s diversified across industries as well. There are five industries that have an allocation of more than 10%: IT (22.9%), financials (12.9%), healthcare (12.8%), consumer discretionary (12%) and industrials (10.6%).
Vanguard MSCI Index International Shares ETF is also invested in some of the world’s greatest businesses like Apple, Microsoft, Alphabet, Amazon.com, Facebook, Tesla, Nvidia, Visa and Mastercard.
All of this diversification comes with a cost of just 0.18% per year. Looking at the net returns of the ETF, it has made an average return of 15.3% per year over the last five years. Not bad.
Why it may not be the best
There’s no doubt that the VGS ETF is a decent, passive way for investors to invest.
However, it’s invested in some sectors that usually don’t offer good, consistent growth like materials, energy and utilities.
The large end of its portfolio may have great names, but the further down you go the less quality those businesses may be, reducing returns.
I believe that there are a number of diversified portfolio options that could be better in both the listed investment company (LIC) and ETF space such as: Betashares Global Quality Leaders ETF (ASX: QLTY), VanEck Morningstar Wide Moat ETF
(ASX: MOAT), MFF Capital Investments Ltd (ASX: MFF), WCM Quality Global Growth Fund (ASX: WCMQ) and BetaShares Global Sustainability Leaders ETF (ASX: ETHI).
Final thoughts
Vanguard MSCI Index International Shares ETF is a solid option for long-term, diversified global shares investing. However, I believe there are other options that can provide more concentrated portfolios, potentially better returns and higher-quality allocations.
