3 reasons why this Vanguard ETF is a top buy for diversification

Aussies have a pleasing number of options to invest in, whether that's ASX shares or ASX listed global exchange-traded funds (ETFs) that give significant exposure to US shares. But, investors may be well-served by looking at funds that provide exposure to non-US global shares, which can include Vanguard ETFs.

Whether that's UK shares, European shares, Japanese shares, Chinese shares, Indian shares and so on – there are a number of places outside of the ASX and US worth investing in. The Vanguard All-World ex-US Shares Index ETF (ASX: VEU) could be an effective all-in-one option for a few different reasons.

While I'm not suggesting making the VEU ETF the biggest position in one's portfolio, I do think it can effectively diversify a portfolio that's overly concentrated in ASX and US shares. Let's get into why it's so compelling.

Global exposure

The key reason why I think it's such an effective diversification option is that it's invested in numerous countries.

The following markets have an allocation of at least 4% in the portfolio: Japan, the UK, China, France, Canada, Germany, Switzerland, India, Taiwan and Australia. The US share market would typically be at least two-thirds of the portfolio in a similar fund that also includes US shares, so it's useful that many other countries get a sizeable weighting instead.

There are plenty of countries with a weighting of between 1% and 4%, including South Korea, the Netherlands, Italy, Spain, Sweden, Denmark, Hong Kong, Brazil and Saudi Arabia.

There are more than 3,800 businesses inside this Vanguard ETF, which makes it one of the most diversified ASX ETFs you can buy, in my view.

International leaders

While it doesn't own any US businesses in the portfolio, it still owns a number of regional or global leaders. I'm not expecting this fund to deliver huge returns, but I think the outlook is promising for solid returns that could potentially beat the S&P/ASX 300 Index (ASX: XKO) because of the strength and quality of the businesses.

Some of the top 10 holdings in the portfolio include Taiwan Semiconductor Manufacturing, Tencent, SAP, Nestle, ASML, Alibaba, Roche, Novartis, Toyota and AstraZeneca.

As a group, I think these businesses collectively have a very promising future.

If a new global winner emerges from any of the countries covered by this Vanguard ETF, then this fund will benefit.

Very low fees

One of the best reasons to like Vanguard ETFs is that they typically have among the lowest fees for their respective investment products. The lower the fee, the more of the money that stays in the hands of investors rather than going to a fund manager.

The VEU ETF has an annual management fee of just 0.04%, making it one of the cheapest funds on the ASX. Getting that much diversification for such a low fee is a real selling point.

While low fees don't guarantee strong investment returns, it does mean stronger net returns for investors.

The post 3 reasons why this Vanguard ETF is a top buy for diversification appeared first on The Motley Fool Australia.

Motley Fool contributor Tristan Harrison 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, Taiwan Semiconductor Manufacturing, and Tencent. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Alibaba Group, AstraZeneca Plc, and Roche Holding AG. The Motley Fool Australia has recommended ASML. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2025