Vanguard Australia offers an exchange-traded fund (ETF) called VGS. The MSCI World ex-Australia Index, which comprises large- and mid-cap companies from 22 developed nations (except from Australia), is what it seeks to monitor.
This implies that investing in VGS gives you immediate access to almost 1,500 global businesses from a variety of industries and regions, such as the US, Europe, Japan, the UK, and Canada. Imagine Apple, Microsoft, Nestlé, Toyota, and Unilever all combined into a single, user-friendly exchange-traded fund (ETF).
Why Do Australians Invest in VGS?
1. Diversification Beyond the ASX
The Australian stock market is heavily concentrated in a few sectors—namely financials and resources. By contrast, the MSCI World Index offers broader exposure, especially to the technology and healthcare sectors, which are underrepresented on the ASX.
2. Global Blue-Chip Exposure
VGS holds some of the most reliable and innovative companies in the world. Many investors use it as a long-term core holding, confident in the track record of these multinational firms to grow and deliver returns.
3. Cost-Effective and Transparent
VGS has a low management fee of 0.18% per annum, making it one of the most cost-efficient ways to gain access to global shares. It’s also fully transparent, with Vanguard publishing the fund’s holdings regularly.
4. No Need to Worry About Currency Exchange
VGS is traded on the ASX in Australian dollars, making it simple for local investors to buy and sell without needing to deal with foreign exchange conversions or overseas brokerage accounts.
Considerations Before Investing
While VGS is a strong ETF, it’s not without considerations:
- No Emerging Market Exposure: VGS only includes developed markets, so if you want exposure to fast-growing economies like India or Brazil, you’ll need to pair it with another ETF (e.g., VGE).
- Currency Risk: Since the underlying assets are denominated in foreign currencies (e.g., USD, EUR, JPY), fluctuations in exchange rates can impact returns. VGS is unhedged, meaning returns can be positively or negatively affected by the AUD.
- Overlap with Other ETFs: Be mindful if you hold other global ETFs or managed funds, as they may contain the same companies, leading to duplication in your portfolio.
Who Is VGS Suitable For?
VGS is ideal for:
- Long-term investors seeking global diversification
- Beginner investors who want a simple, broad-based ETF
- Those using a core-satellite strategy, with VGS forming the core
- Retirement-focused investors looking for exposure to global markets with relatively low volatility