Australian investors are searching for development prospects abroad in a world that is becoming more interconnected. The Vanguard MSCI Index International Shares ETF (ASX: VGS) is one of the most well-liked ways to get exposure to international stocks. Access to a diverse portfolio of large and mid-cap companies listed in key developed markets—aside from Australia—is made possible by this exchange-traded fund (ETF). Let’s examine its fundamental structure, recent performance, and place in a well-rounded portfolio.
What is VGS?
The Vanguard MSCI Index International Shares ETF is designed to track the return of the MSCI World ex-Australia Index (with net dividends reinvested, in Australian dollars). This includes over 1,500 companies across the United States, Europe, Japan, and other developed nations.
Some of its largest holdings include globally recognized companies such as:
- Apple
- Microsoft
- Amazon
- Nestlé
- Toyota
It’s an efficient way for Australian investors to gain instant international diversification without having to buy individual foreign shares or manage currency conversions.
Performance Overview
As of early 2025, VGS has continued to deliver solid long-term returns, consistent with the strength of global equity markets, particularly in the U.S. Here’s a general breakdown of its performance over different timeframes (note: actual figures may vary based on current data):
- 1-Year Return: ~22% (boosted by strong U.S. tech sector growth)
- 3-Year Annualised Return: ~10% p.a.
- 5-Year Annualised Return: ~11% p.a.
- Since Inception (2014): ~10% p.a.
These returns reflect not only the strength of global equity markets but also the benefit of exposure to strong-performing sectors like technology and healthcare.
Why Is VGS Popular in Australia?
- Diversification: The ASX is heavily weighted toward banks and mining companies. VGS offers exposure to sectors underrepresented in Australia, such as global tech and healthcare.
- Currency Exposure: VGS is unhedged, meaning it gains when the AUD weakens against major currencies—a hedge in itself for Australian investors.
- Low Cost: With a management fee of just 0.18% p.a., it’s one of the cheapest ways to access international equities.
- Liquidity and Accessibility: Traded on the ASX like any share, VGS is easy to buy and sell, even for retail investors.
Risks to Consider
While VGS provides broad diversification, it still carries risks:
- Market Volatility: As a passive index-tracking ETF, VGS mirrors the ups and downs of the global market.
- Currency Risk: While unhedged exposure can benefit investors when the AUD falls, it can hurt returns when the AUD strengthens.
- Sector Bias: Given the heavy weight of U.S. tech stocks, VGS performance is somewhat linked to the fortunes of a few large firms.
Is VGS Right for You?
VGS is ideal for investors seeking:
- Long-term capital growth
- Global diversification
- A simple, low-cost investment option
It’s often used as a core holding in diversified portfolios, balanced out by domestic Australian ETFs like VAS or income-generating assets.