The Vanguard MSCI Index International Shares ETF (ASX: VGS) and the iShares S&P 500 AUD ETF (ASX: IVV) are two of the most popular ASX exchange-traded funds (ETFs) for investors wanting international exposure.
I think both could be excellent long-term holdings.
The tricky part is that they are not as different as they may first appear. The VGS ETF has a large weighting to US shares, which means there is plenty of overlap with the IVV ETF.
Even so, there are some important differences.
The case for the IVV ETF
The IVV ETF gives investors exposure to the S&P 500.
That means investors are buying a slice of 500 large US-listed companies across technology, healthcare, financials, consumer goods, industrials, communications, and more.
For me, the appeal is the sheer quality and depth of the US market.
The S&P 500 has produced an average annual return of around 10% over the very long term. That is not guaranteed to continue, but it is an outstanding track record.
The US market has also been very good at producing world-leading companies. Many of today’s most important businesses in artificial intelligence, cloud computing, software, digital advertising, payments, and consumer technology are listed in the United States.
That makes the IVV ETF a very simple way to access a powerful long-term growth engine.
It is not risk-free. US shares can become expensive, technology exposure can be high, and currency movements can affect Australian investors.
But if I wanted one clean, simple global growth ETF, the IVV ETF would be hard to beat.
The case for the VGS ETF
The VGS ETF takes a broader approach.
It still gives investors plenty of exposure to US shares, so investors are not missing out on many of the world’s largest technology, healthcare, and consumer businesses. But it also reaches beyond the United States into other developed markets.
That means investors get exposure to companies listed in places such as Japan, the UK, France, Switzerland, Germany, the Netherlands, and Canada.
For example, the VGS ETF can provide access to global leaders that are not part of the S&P 500, such as LVMH Moet Hennessy Louis Vuitton, ASML, and Nestle.
I can see the appeal of that.
The world’s best companies are not all listed in the United States, and the VGS ETF gives investors a more diversified way to invest internationally.
Which one would I choose?
This is a close call. If I could only buy one today, I would choose the IVV ETF.
The S&P 500’s long-term record, the strength of US corporate earnings, and the number of world-class companies inside the index make it my preferred option.
But I do not think this is a one-size-fits-all answer.
The VGS ETF could be the better choice for investors who want broader developed-market diversification. It may also suit investors who prefer not to have so much of their international exposure tied to one country.
Foolish takeaway
I would not lose sleep owning either of these ETFs for the next decade.
The IVV ETF is my pick because I think the S&P 500 remains one of the best long-term wealth-building markets in the world.
But the VGS ETF solves a different problem. It gives investors a wider developed-market footprint and reduces the need to rely so heavily on the United States.
The post VGS vs IVV: Which ASX ETF is better? appeared first on The Motley Fool Australia.
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More reading
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Motley Fool contributor Grace Alvino has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended ASML and iShares S&P 500 ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Lvmh Moët Hennessy – Louis Vuitton, Société Européenne and Nestlé. The Motley Fool Australia has recommended ASML, Vanguard Msci Index International Shares ETF, and iShares S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.