The Vanguard All-World ex-US Shares Index ETF (ASX: VEU) is an exchange-traded fund (ETF) that's invested in such a large array of companies across the world that it could tick all of the diversification boxes.
Vanguard is one of the world leaders in providing cheap ETFs to investors. The owners of Vanguard are the investors themselves. It shares the profit by providing lower management fees.
This strategy keeps more of the money in the hands of investors because higher fees eat away at the net returns.
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What is the VEU ETF invested in?
As the full name of the ETF suggests, it's invested in the global share market outside of the US. That means it's invested in both 'developed' and 'emerging' countries.
That includes Japan, the UK, China, France, Canada, Switzerland, Germany, Australia, India, Taiwan, South Korea, the Netherlands, Sweden, Denmark, Hong Kong, Brazil, Italy, Spain and Saudi Arabia. Each of these countries has a weighting of more than 1% in the portfolio.
It's invested in more than 3,700 businesses. This really protects the investor against any individual company risk.
At the end of June 2023, the biggest positions were: Taiwan Semiconductor Manufacturing, Nestle, Samsung Electronics, ASML, Tencent, Novo Nordisk and LVMH Moet Hennessy Louis Vuitton. These are compelling businesses with very promising outlooks in their respective sectors.
In terms of industry allocation, there were four sectors that had a weighting of more than 10% at the end of June: financials (19.9%), industrials (14.8%), consumer discretionary (13.8%) and technology (11.8%).
Long-term returns
I must point out that the Vanguard All-World ex-US Shares Index ETF hasn't exactly been the strongest performer.
Over the decade to June 2023, the VEU ETF returned an average of 8.5% per annum. The Japanese, Chinese, UK and European share markets have not fired on all cylinders over this time period. But the ETF's performance has been good enough to still deliver good compounding results.
Interestingly, its distribution yield has been above 3% over the long term which makes it a decent option to consider for passive income.
Is this a good time to invest in the ASX ETF?
It's hard to say whether it's the right time to buy a group of over 3,700 businesses, as each one has its own individual valuation. This sort of ASX ETF is one that I'd be happy just to regularly invest in.
Vanguard did say that at 30 June 2023, the portfolio's overall price/earnings (P/E) ratio was just 12.7 times, which seems low considering the nature and quality of holdings.
It also said that the portfolio's trailing earnings growth rate was 9.6% and the return on equity (ROE) was 12.4%. With those numbers, the VEU ETF could make a good return. A low P/E ratio and a good earnings growth rate (with a decent dividend yield) is an attractive combination.
