The Vanguard Msci Index International Shares ETF (ASX: VGS) is a high-quality exchange-traded fund (ETF) that has a number of positives that would work for almost any portfolio.
The concept of the VGS ETF is that it invests in a portfolio of sizeable businesses from a wide array of economically developed countries. A majority of the portfolio is invested in US businesses, but that’s not a surprise considering how many of the global giants are listed there. I think the fund has a lot to offer investors in terms of diversification and other benefits.
Diversification
The Vanguard Msci Index International Shares ETF had 1,282 holdings at the end of October 2025, which is more than enough diversification.
The biggest businesses make their money directly or indirectly from across the world, such as Nvidia, Apple, Microsoft, Alphabet, Amazon and Meta Platforms. Their earnings are geographically diversified, in my view.
VGS ETF also has pleasing diversification when it comes to the sector allocation, with IT, financials, industrials, consumer discretionary, healthcare, communication services and consumer staples all having a weighting of at least 5%. I like these weightings because I believe these industries have a better earnings growth outlook than energy, utilities and materials.
While the US makes up almost three quarters of the portfolio, there are a number of markets with an allocation of at least 0.5% including Japan, the UK, Canada, France, Germany, Switzerland, the Netherlands, Sweden, Spain, Italy and Hong Kong. It’s a truly global fund.
Strong returns
As investing advertisements sometimes tell us, past performance is not a reliable indicator of future performance. Impressively, the VGS ETF has returned an average of 13.9% per year since its inception in November 2014. Within that, its distribution has been an average of 3% per year, which is a satisfactory level of income provided for investors wanting cashflow.
Those returns have been driven by the excellent businesses which don’t look like slowing down any time soon. According to Vanguard, the portfolio’s businesses have grown earnings by 22.3% in the last 12 months, which is a strong support for share price growth.
I think further good profit growth looks likely because the fund reported its portfolio had a return on equity (ROE) of 19.6%. That suggests ongoing profit re-investment could deliver a profit return of well over 10% on that money for shareholders.
Low costs
The VGS ETF gives investors a lot of diversification and pleasing returns, yet its costs are very low for what it does.
Vanguard currently has an annual management fee of 0.18% and I wouldn’t be surprised if it goes lower in the coming years because of Vanguard’s efforts to lower costs for investors.
With a low fee like that, investors are able to keep most of the gross returns in their portfolio, rather than losing it to a fund manager.
