Gold rated ETF for global shares
This offering from Vanguard receives the highest rating from our analysts
Vanguard's International Shares strategy provides investors efficient exposure to global equity markets. The non-hedged ETF VGS and its Australian-dollar-hedged version VGAD mirror the MSCI World ex Australia Index and AUD hedged index respectively, net dividend reinvested. The index continues to be a challenging benchmark for active managers to overcome, reconfirming our conviction in the strategy.
The underlying index is appealing, providing investors with exposure to approximately 1,350 constituents across 22 developed markets. Like other diversified global indexes, the index has a significant exposure to US-domiciled holdings, which constituted 75% of the index as of January 2025. However, the multinational nature of revenue earnings among the holdings reduces our concern for country concentration risk. Against the depreciating Australian dollar over calendar year 2024, the hedged share class' performance was notably weaker than that of the unhedged share class, returning 20.57% versus 31.14%, respectively.
Overall, the strategy stands to be among one of the best choices for global market exposure. The efficacy of passive management in the US-dominated global markets, its cost-efficient availability, and broad diversification continue to be key drivers that earn our conviction.
Well-executed exposure to large-and mid-cap stocks
The strategy aims to fully replicate the MSCI World ex Australia Index with net dividends reinvested and share classes available in both Australian-dollar-hedged and unhedged versions. There will be short periods where the stock weights are slightly different from the benchmarks as the firm will work to avoid unwarranted cost-inflating trades.
While a computer model suggests the necessary trades to keep in line with the index, the investment team will carefully deliberate on potential market impact, cash flows, and performance opportunities during placement and index changes. For example, Vanguard may allow cash to build to about 2% of the portfolio before investing, using index futures to equitize cash holdings in the short term so that the strategy remains as fully invested in shares as possible. It can also use futures to invest dividends receivable before they are actually paid to achieve a similar effect.
Tax and trading efficiency further stems from low stock turnover in the benchmark index. While large inflows or outflows may temporarily elevate turnover, the outlined processes have been effective in capping the portfolio’s turnover at low levels and mitigating the cost to investors. The outcome is a low tracking error fund that efficiently tracks the underlying index.
The index provides good diversification; it covers large- and mid-cap stocks from 22 developed markets. As of January 2025, this included approximately 1,350 constituents and captured the top 85% of stocks by market cap. The resulting portfolio effectively captures most of the opportunity set available to its actively managed peers in the Morningstar Category.
Like other global indexes, the US represents a significant proportion of the index—approximately 75% as of January 2025. However, many US-listed companies are multinational organizations with a large global footprint, this leads to a greater global diversification benefit than the headline numbers may suggest. The index remains well-diversified at a stock level with the top 10 holdings representing around 26% as of January 2025.
