On paper, the Vanguard MSCI Index International Shares ETF (ASX: VGS) might look like one of the most diversified exchange-traded funds (ETFs) on the ASX. VGS holds close to 1,500 individual shares within its ETF portfolio. Those near-1,500 companies hail from more than 20 countries. These include Canada, the United Kingdom, Singapore, Japan, Hong Kong, and most of Europe. But also the United States.
But digging deeper, it appears that VGS’s diversification could arguably be described as shallow at best.
Yes, this ETF holds close to 1,500 shares. But it is also a top-heavy ETF. Although VGS represents the share markets of more than 20 countries, the United States alone makes up just under 70% of its entire portfolio.
Its largest ten companies by market capitalisation and portfolio weighting are all American too. Here’s a list of VGS’s top ten holdings and their weightings in this ETF (as of 28 February):
- Apple Inc (NASDAQ: AAPL) with an ETF weighting of 4.82%
- Microsoft Corporation (NASDAQ: MSFT) with a weighting of 3.79%
- Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) with a weighting of 2.82%
- Amazon.com Inc (NASDAQ: AMZN) with a weighting of 2.49%
- Tesla Inc (NASDAQ: TSLA) with a weighting of 1.32%
- NVIDIA Corporation (NASDAQ: NVDA) with a weighting of 1.08%
- Meta Platforms Inc (NASDAQ: FB) with a weighting of 0.89%
- UnitedHealth Group Inc (NYSE: UNH) with a weighting of 0.8%
- Johnson & Johnson (NYSE: JNJ) with a weighting of 0.77%
- Berkshire Hathaway Inc (NYSE: BRK.B) with a weighting of 0.75%
So as you can see, VGS is dominated by the big US tech companies. In fact, if we put Apple, Alphabet (owner of Google), Amazon, and Meta (formerly known as Facebook) together, we get a total weighting of approximately 11.02%. Throw in Netflix Inc (NASDAQ: NFLX), the final stock in the old ‘FAANG’ group, and we get 11.33%.
FAANG, FAANG+ dominate VGS ETF
So 11.33% of VGS’s entire portfolio of almost 1,500 shares is concentrated in the FAANG stocks.
Going further, Tesla, NVIDIA, and Microsoft are often added to the traditional FAANG grouping in what investors describe as ‘FAANG+’.
If we include these FAANG+ stocks, we get to a total weighting of 17.53%.
So really, close to $1 in every $5 invested in the Vanguard MSCI Index International Shares ETF is going to go to the FAANG+ stocks. Now there’s nothing inherently wrong with that, of course. FAANG+ shares arguably represent some of the strongest and most dominant companies on the planet.
However, it does mean that VGS isn’t as diversified an ETF as it might initially appear if one just looks at its total portfolio and raw geographic exposure. The Vanguard MSCI Index International Shares ETF charges a management fee of 0.18% per annum.
The post Is the Vanguard International Shares ETF just a big bet on the FANG stocks? appeared first on The Motley Fool Australia.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Motley Fool contributor Sebastian Bowen owns Alphabet (A shares), Amazon, Apple, Johnson & Johnson, Meta Platforms, Inc., Microsoft, Nvidia, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Alphabet (A shares), Amazon, Apple, Berkshire Hathaway (B shares), Meta Platforms, Inc., Microsoft, Netflix, Nvidia, Tesla, and Vanguard MSCI Index International Shares ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Alphabet (C shares) and Johnson & Johnson and has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Berkshire Hathaway (B shares), Meta Platforms, Inc., Netflix, Nvidia, and Vanguard MSCI Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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