Looking for ASX diversification? This ETF from Vanguard is one of the most diversified funds on the ASX, with 1,500 underlying shares.
The post Looking for diversification? Try this ASX ETF appeared first on The Motley Fool Australia. –
Exchange-traded funds (ETFs) are often hailed for the diversification they can bring to one’s share portfolio. Since an ETF is a fund, it holds a basket of underlying shares within it.
The level of diversification offered by an ETF, however, can vary in scale and scope. Some ETFs cover specific industries, some cover the share markets of an entire country and some cover markets spanning multiple countries. These separate categories offer different types of diversification, some of which may suit certain investors more than others.
On that note, let’s take a closer look at one ASX ETF that offers more diversification than almost any other. That ETF is the Vanguard MSCI Index International Shares ETF (ASX: VGS).
A highly-diversified ETF
The reason VGS can be considered one of the most diverse ETFs on the ASX lies in its nature. The fund tracks the MSCI World ex-Australia index, which, according to Vanguard, follows “the world’s largest companies listed in major developed countries”. These advanced economies include the United States, Japan, the United Kingdom, France, Canada, Germany, Switzerland, New Zealand, Hong Kong and others (14 to be precise).
From these countries, The ETF tracks more than 1,500 different underlying shares. Due to sheer size, most of these holdings (67.5%) are domiciled in the United States, but Japan, the UK and Canada also meaningfully contribute.
Because of this US dominance, most of VGS’s top holdings are US companies. Its 10 largest holdings are as follows:
- Apple Inc (NASDAQ: AAPL)
- Microsoft Corporation (NASDAQ: MSFT)
- Amazon.com Inc (NASDAQ: AMZN)
- Facebook Inc (NASDAQ: FB)
- Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL)
- Tesla Inc (NASDAQ: TSLA)
- Johnson & Johnson (NYSE: JNJ)
- JPMorgan Chase & Co (NYSE: JPM)
- Visa Inc (NYSE: V)
- Procter & Gamble Co (NYSE: PG)
Other large holdings that are not US companies include Nestle SA, Novartis, LVMH and Toyota Motor Corp.
Although it appears as though VGS is a US-centric ETF, it’s worth noting that most of the largest US companies it holds have significant global operations.
So how has this ETF performed?
Well, VGS has managed to return 5.8% in 2021 so far. It has also delivered an annualised return of 11.26% over the past 3 years, 11.03% over the past 5, and 12.03% since its inception in 2014. Part of these returns has come from dividend distribution payments. VGS possesses a trailing distribution yield of 1.81% on recent pricing.
The fund charges a management fee of 0.18% per annum, which means it will cost an investor $18 per year for every $10,000 invested.
Outside the emerging markets space, there aren’t too many ETFs on the ASX that offer a more diversified portfolio that VGS. It provides investors with exposure to more than 1,500 companies around the world through just one holding.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of Alphabet (A shares), Facebook, Johnson & Johnson, JPMorgan Chase, Procter & Gamble, Tesla, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Amazon, Apple, Facebook, Microsoft, Tesla, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Johnson & Johnson and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Alphabet (A shares), Amazon, Apple, Facebook, and Vanguard MSCI Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.