Stocks In Focus: Vanguard MSCI International ETF, June 5 2025

0:29A listener production. Vesely. Ed, g'day. G'day, Scott. How are you? Mate, I'm very, very well. Thank you for asking. Our usual disclaimer, by the way, this is recorded at a point in time, this one early June 25, things will and do change. So please just keep that in mind. If you're listening or watching this after the fact, just bear in mind that these were accurate as we can be with our objective views as of the early, well, 2nd of July, I think it's June, sorry, I think it's 2025. So yes, that's what we're doing here uh by the way before i let ed loose if you are watching this on youtube please consider doing all the cool youtube things if i was an influence i'd know them but effectively you've got to apparently like the video if you wouldn't mind helps people find it and then subscribe to the channel so you're getting the content that we produce and hit that notification bell that means youtube will actually push a notification to you when we have more great content sneak peek by the way ed is here today to talk about our one of our stocks in focus on Friday afternoon.

1:25Once a month, we release a Motley Fool Stock of the Month. One of our current recommendations, a buy recommendation from behind the paywall. So it's a very, very good reason to subscribe. Speaking of which, if you're on the YouTube, sorry, if you're on the podcast, thank you for listening, but we only do Stock of the Month on YouTube. So duck over there, go to the video, just search Motley Fool Australia. As usual, hit the like, subscribe and notification bells. All right, that's out of the way, Ed. Let's get on with today's company. It is not even a company. It's a trust. It's a structure. It is the Vanguard MSCI International ETF.

1:58The code is VGS. So I guess the first question is, what exactly is this investment? Thanks, Scott. Yeah, as you say, it's not a company. It's an exchange traded fund. That's the ETF side of things. So it's literally a fund that is listed on a market such as the Australian Securities Exchange and units can be purchased and sold on the market, just like shares can be done with standard companies. I should also just point out too, Vanguard MSCI. MSCI does stand for the Morgan Stanley Capital Index. I think that's what it should be anyway. But what it is, it's a portfolio of companies around the world that do not include the Australian market.

2:42So you can think straight away, okay, this could be a very interesting idea for diversification. So if you've got all of your investments already in Australia, this could be a very handy way of just moving some of that money away from the Australian market and being just a little bit more diversified. Okay, so what is it? It's an exchange-traded fund. It's a portfolio. It's low cost. The portfolio, by the way, is reasonably large. It's around 1 ,300 companies or so. I think I had an exact number here, 1 ,304, as at the end of April. It does pay a quarterly distribution, which is quite handy. And Scott, funnily enough, you don't really expect high amounts of income when it comes to investing in international markets.

3:26But this particular ETF has paid just under$4.66 in the last 12 months. There's no franking attached for obvious reasons. But the current distribution yield on this is just 3.36%, which is actually paid quarterly and isn't too bad. and I do work on dividend investors. So no matter what companies I'm looking at or ETS, Scott, I'm always going to have a dividend angle here. So you can expect that from me. I like it. I like it, mate. So this one covers 1 ,300 companies across the world's major exchanges, the US, Europe, Canada, UK, Japan. I think they're the major ones. Is that roughly right? Yeah, I had the US obviously being the biggest and most liquid market in the world.

4:10It's there, it's dominant. It's about 72 % of the total. Wow, okay. Yeah, which is actually higher than I thought, to be honest. I mean, the world is a big place, but that's 72 % of a global fund like this. But the next four largest country exposures were Japan. I had that at 5.8%. The United Kingdom at 3.9%. Canada, 3.3%. And then France at 3%. But it's interesting, isn't it? You've got the US at 72%, and then you've got the next largest country exposure being at 5.8 % with Japan. So there's a massive gap there. So that's a pro and a con, I guess, but we'll talk about that in a moment. We will.

4:48And you mentioned before too, this excludes Australia. So it's the world except us, which is a nice opportunity. So if you think about how to build a portfolio, you're not getting double exposure to your Australian shares you may hold. This is the rest of the world, the rest of the developed world anyway, investment idea. So let's go to that, mate. Let's not steal too much of your thunder. Let's go at the pros of an investment. Why would someone watching or listening want to consider buying units in the Vanguard MSCI International ETF? Well, there's a few reasons. I actually do like this ETF. I think for anyone who's starting out as a, if they're a beginner, it's a good way to start a portfolio.

5:24But even for someone who's not a beginner and someone who hasn't been investing for a long time, or maybe just can't be bothered with the, I suppose the paperwork and the hassle of setting up a brokerage and buying shares directly in the US or in other markets, you can do it with this ETF. and it's listed, as I say, here on the Australian Securities Exchange. So it's very, very easy. Look, being an ETF, it's easy to buy and easy to sell. You can certainly dollar cost average your way in. There are brokers out there that will allow you to do that at low brokerage. So there's that. But I guess the main point is it's very easy to buy a very large portfolio.

6:02Now, I wouldn't suggest, Scott, that you'd have all of your money in this one ETF or any ETF for that matter or any one company. But it can form a very solid foundation for a portfolio, which could maybe be considered as two or three ETFs and then say, who knows, a dozen companies or maybe up to 20 companies. This is something that people can work on over many years. It's not something that happens straight away. But I do find it's a very good foundation for investment. So two, there is a cost, by the way, involved in this, but it is extremely attractive. It's 0.18 % per annum. So what that means is that for every$10 ,000 you have invested in this CTF, it's going to cost you$18.

6:42It's not something you pay up front or anything like that. It's deducted out of the unit price, so you won't actually see it. But it's very comforting to know that$18 out of every$10 ,000 is going to be the total cost, other than the brokerage, of course, to buy the units in the first place. So I think it's very attractive. It's diversified. It's global. It gives you the instant diversification angle away from Australia, and it's cheap. the returns have been good as well. So really, there's not a great deal to dislike about this ETF. Pretty good combination. And of course, that diversification you talk about gives you geographic diversification, currency, industry diversification, where banks and miners largely here overseas, more consumer companies, tech, all that kind of stuff.

7:20So lots to like about it. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

7:31You said not much to dislike, but let's at least try and have a look at that. What are some of the risks? What are some of the reasons why people might not invest in this particular ETF? Well, it's a pro and a con, as I said. It's diversified, but as I've just pointed out, the US makes up 72 % of the ETF. That's a reasonably large amount, considering that Japan was the next largest exposure. So what that means is that the top 10 companies in this particular ETF are all American, and that's not a bad thing, but it does mean that you're concentrated in that one market. So if you're going to look more broadly and you wanted a broader option to invest globally, maybe this particular ETF isn't the way to go because it is so heavily concentrated into the US market.

8:16The other factor to consider, it is a very high quality fund, I think, but the PE, the price earnings on this, when you consider the portfolio as a whole, it's sitting at around 21.7 times trailing earnings. So I wouldn't say it's expensive necessarily, but it's not cheap either. but keeping in mind too there is a 3.36 percent distribution yield there so i do like that side of it but admittedly it is um it's a very large portfolio too i think if you want to do well in the market you either take the market view or you can invest directly in companies even so taking the market view and considering that as being for 1304 companies is rather broad i have to say.

8:58I don't think it's necessarily a terrible thing by itself, but I think some people can probably optimize to just be a little bit more focused. It doesn't have to be that broad, but even so, returns on equity, according to Vanguard, on this portfolio of companies within the ETF sits at around 19%. So that's actually very high. And the earnings growth rate is just under 18 % at the moment. I mean, that could change and it probably will change, of course, but But it's, look, I'd say probably the best, the thing that you have to focus on mainly is the concentration. If you're okay with investing predominantly in the United States with the rest, the 28 % that's left over being elsewhere around the world, that's probably okay.

9:41But even so, you can invest in an ETF like this and then continue to diversify. There's a lot of great options out there directly in companies but also directly into other ETFs, which are just as easy to buy and sell as this one. So it's not the end of the world. But if you're going to put a large chunk of your money into this and you want this to be your major source of international diversification and growth, then you just have to think very carefully about that relatively heavy weighting towards the US market, which is, by the way, just a few percentage points off its all-time highs. So you have to keep that in mind as well.

10:13Nicely done. Of course, if you're on a dollar-cost average over a length of time, the current prices matter quite so much, but still worth thinking about when you make those investments if you are going to make selective investments at points in time. Mate, normally, well, most ETFs, well, index ETFs anyway, track the index. So they're going to deliver exactly what the index delivers. This one's different. Yes, it'll do that. But we're talking about an international index, not an Australian index. So I am going to ask you the question. If we're taking a long-term view, and as investors, we should be over, say, five plus years, do you reckon the MSCI, the Vanguard MSCI international ETF is a market beater, at least when compared to the ASX?

10:47Well, I think it can be. although there's a lot of factors that have to be considered. Currency is obviously one. So you're buying in Australian dollars, but your investments are in currencies, you know, Japanese yen and the euro and the American dollar and so on. I can't say for sure, but the returns since this ETF has been on the market and available for purchase have been a decent margin above 10%. I haven't got the figures in front of me, but I think it was just over 11 % per annum on average since 2014. So that's actually quite healthy. That does include the distributions as well. So some of that routine will come to you as income, which by the way, as I say, is paid quarterly.

11:28But I think it can be. The Australian market by itself is actually obviously by definition more concentrated. It is one market. I think what you'll find though, Scott, is over five years, you could find that this particular EDF could beat the market. But over five and a half years or three and a half years or some other period, you could find that the Australian market will leap in front. So I think it's a matter of playing absolutely the long game. I'd say if you're going to invest, certainly invest for way more than five years if you can, double that amount of time if you can, make it 10 years or even longer.

12:01And I think that this can be an Australian market beater over time. But I think more importantly, it's not just about beating the Australian market, it's about that diversification. So there are times when maybe the Australian market becomes very expensive and is shooting the lights out because of a lower dollar and higher commodity prices, for example. And you might find that the ETF here is not going to do as well, relatively speaking, but that will change. So just from the peace of mind of having diversification and a bit of an option there to benefit when the market is not doing so well in Australia and vice versa, I think that is a very good attractive attribute of investing overseas.

12:38But yes, to answer your question, I do think it can beat the market, even if it's only marginal, over the Australian market over five years. There you have it, the Vanguard MSCI International ETF. The code is VGS. I should also disclose my own units in that ETF, just to keep everything completely above board so you know what's going on. But it's an opinion that matters today, not particularly mine. Thanks for being with us, and thank you for sharing your expertise. To our viewers and listeners, thank you for being part of the Motley Fool journey, Motley Fool community. If you're on the podcast, jump over to YouTube.

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