2 ETFs (VGS vs VTS) For Global Exposure in 2022

*This article was last updated on: 7/05/2022

In this article, I discuss two of Australia’s popular international ETFs (VGS vs VTS).  I’ll also touch on some other ASX listed ETFs that generally align with the strategies offered by either VGS or VTS.

Before reading any further, please ensure you’ve read and clearly understand my financial disclaimer located at the bottom of this post.

Want to know more about the basics of ETFs?

Here’s a link to an investing basics article I wrote about the 6 things you should know about an ETF before investing.

If you’d like to read about VGS or VTS specifically, or if you just want my verdict, use the links below: 

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1. VGS ETF Review

First listed in 2014, Vanguards VGS provides investors with access to some of the world’s largest, most established organisations. 

To do that, VGS aims to track the returns of the MSCI World ex-Australian Index. 

Global diversification, all in one ETF. 

VGS invests in companies all around the world. Some of its larger market allocations include the United States, Japan, United Kingdom, Canada, France, Switzerland and Germany. 

VGS does give investors exposure to multiple international markets, but it’s market-cap-weighted. That means 69% of its holdings are listed in the United States.

69% of VGSs holdings are listed in the U.S.

VGS holds mostly American Companies because that’s where the world’s largest organisations (measured by market capitalisation) are listed. 

In fact, 7 of the (largest market capitalisation) 10 companies in the world are listed in the U.S.

The majority of VGSs holdings are U.S. listed, but that doesn’t mean their operations are limited to the confines of the American borders.

It’s important to keep in mind these are the world’s largest companies that provide their goods and services across the globe.

Unlike VTS, VGS Is Australian Domiciled.

One big advantage of holding VGS over VTS is that it’s Australian domiciled. 

An ETF domiciled in Australia is regulated, registered and formed in Australia. That means it’s subject to Australian taxes and governed under Australian law.

Because VGS is Australian Domiciled, it also means the ASX is its home exchange. 

What about ETFs that aren’t Australian Domiciled? (VGS vs VTS)

Another way for global ETFs like VTS to list on the ASX without being Australian domiciled is through a CHESS Depository Interest (CDI) in an existing overseas fund.  

A CDI is typically listed by a global provider like Vanguard, or iShares, with an Australian presence.

CDI’s are listed on the ASX, but it’s actually a “cross-listing” of an international fund. In the case of VTS, it is a cross-listing of  the Vanguard Total Stock Market ETF (NYSE:VTI)

Here are the Benefits Of Holding Australian Domiciled ETFs like VGS.

The benefits of sticking to an Australian domiciled ETF are noteworthy. I’ve broken them down below:

  • Minimal foreign governance risk or legal implications because Aussie Domiciled ETFs are governed under Australian law.
  • No need to submit a W8-BEN form because you’re not buying an interest in an internationally domiciled fund.
  • Generally speaking, Australian domiciled international ETFs are only subject to withholding tax once from any distributions (dividends) paid from offshore companies into Australia.

Want to know more about Australian domiciled ETFs?

If you’re interested in some further reading, this article from BetaShares provides some great insights into the differences between Australian and non-Australian domiciled ETFs.

VGS Offers A Dividend Reinvestment Plan.

Unlike VTS, VGS offers investors the added bonus of a dividend reinvestment plan. For investors trying to stay as passive as possible, a DRP is a huge bonus.

With a DRP in place, investors don’t need to worry about re-deploying their dividends once they’re paid. With VGS, Vanguard does all the heavy lifting for you. 

It’s important to remember that all dividends paid by VGS and VTS will be unfranked because their underlying holdings are not Australian.

VGS can be partnered with ⬇️

VGS aims to provide investors with exposure to large organisations in major developed countries. That means large, more emerging markets like China, India and Taiwan are excluded from the ETF. 

For investors seeking broader exposure across both developed, and emerging markets VGS can be balanced out with ETFs like VAE, ASIA, or VGE.

For more information on Asian markets, I wrote this article discussing three ASX Listed ETFs tracking Asian Markets (VAE vs ASIA vs IAA).

VGS Key Facts:

Use the table below to grab some key facts about VGS.

As of 31 March 2022VGS
ETF IssuerVanguard
Management Fee0.18% P.A.
Benchmark IndexMSCI World ex-Australia In Australian Dollars Index
Dividend Reinvestment PlanYes
Currency HedgedNo
Dividend Yield1.7%
Income Distribution FrequencyQuarterly
3Yr Return13%*
Return Since Inception (2014)12.49%*
Funds Under Management (FUM)$4.6Bn
Number of Holdings (ETF)1,498
Weighting MethodologyMarket Cap Weighted
ASX Listed Since2014
Top 10 Holdings (highest to lowest concentration)Apple Inc, Microsoft Corp, Alphabet Inc, Amazon.com Inc, Tesla Inc, NVIDIA Corp, Meta Platforms Inc, United Health Group Inc, Johnson & Johnson, Berkshire Hathaway Inc.
Top 10 Holding Concentration20.2% of the total ETF holdings
Table #1 – VGS Key Facts

*After fees, dividends are reinvested. 

Want to know more about VGS?

Check out the VGS fact sheet if you’re keen on doing some further reading on VGS.

2. VTS ETF Review

VTS is a CDI of the Vanguard Total Stock Market ETF (NYSE:VTI) and was first listed on the ASX in 2009. Its underlying ETF, NYSE:VTI has been listed in the U.S. since 2001.

Vanguards VTS is designed to mimic the returns of the CRSP U.S. Total Market Index. That means investing in VTS will give you exposure to pretty much every listed company in America. Almost 4,000 businesses in other words!

VGS & VTS – which ETF has performed better?

Over the past 3 years, VTS has returned 15.97%*. By comparison, VGS has returned 13%* over the same period. 

Because VTS is only exposed to the American market, its outperformance is mostly a result of the incredible returns the U.S. stock market has produced over the past 3 years when compared to other developed markets like Japan, the United Kingdom, France or Germany. 

SP500, FTSE 100, NIKKEI 225 & STOXX 600 – 2017-2022

The blue line in the chart above represents the S&P 500, the red line is the FTSE 100 index, the green line is the Nikkei 225, and the yellow line is the Stoxx 600 index. As you can see, the S&P500 has dominated other developed market indexes over the past 4.5 years.

Past performance is not a reliable indicator of future performance, so there’s certainly no guarantee American stocks will continue to outperform their international counterparts in the future.

*dividends reinvested, after fees.

VTS is much cheaper than VGS. 

VTS has a lower management expense ratio than VGS. VTS has an MER of just 0.03% whereas VGS has an MER of 0.18%. 

10,000 Invested in VTS or VGS would cost you. 

For context, Vanguard would charge $3 for every $10,000 invested in VTS, and $18 for every $10,000 invested in VGS. These fees are excluding bid/ask spread fees. 

While a $15 dollar difference might not seem like a lot, remember this. Every $1,000,000 invested in VTS would cost you $300. The same amount invested in VGS would cost you $1,800. 

For all you high rollers out there, keep that in mind!

VTS can be coupled with VEU

Because VTS only tracks the returns of U.S. listed companies, you don’t get any exposure to other developed markets like you do with VGS. 

What I’ve Been Reading

An ETF like VEU can work as a great counterbalance to VTS because it provides exposure to many of the world’s largest companies listed in major developed and emerging countries outside the US.

A combination of VTS, and VEU is cheaper than VGS + any of VAE, VGE or ASIA. 

VTS has an 0.03% MER and VEU has an 0.08% MER.  Combined together, the average MER for VTS and VEU would be roughly 0.055%. 

Compared to VGS (0.18% MER) and VAE (0.40% MER), the combination of VTS and VEU is more cost-effective.

Sector Exposure

In terms of sector exposure, the differences between VTS and VGS aren’t massive. VTS has more exposure to the tech sector, which would have helped its performance given how well U.S. tech has performed in recent years.

Other than that, I don’t see too many distinct differences between the two that could make or break a decision.

Top 5 Sector Exposures – 31/02/22VTSVGS
Technology27.6%22.9%
Consumer Discretionary15.3%11.7%
Financials11.3%13.2%
Health Care 12.9%12.9%
Industrials12.6%10.2%
Table #2 – VGS vs VTS Sector Exposure (31 March 2022)

VTS Key Facts:

Use the table below to grab some key facts about VTS.

As of 31 March 2022 vts
ETF IssuerVanguard
Management Fee0.03% P.A.
Benchmark IndexCRSP US Total Market  Index
Dividend Reinvestment PlanNo
Currency HedgedNo
Dividend Yield1.3%
Income Distribution FrequencyQuarterly
3Yr Return15.97%*
Return Since Inception (2009)15.62%*
Funds Under Management (FUM)$3Bn
Number of Holdings (ETF)4,124
Weighting MethodologyMarket Cap Weighted
ASX Listed Since2009
Top 10 Holdings (highest to lowest concentration)Apple Inc, Microsoft Corp, Alphabet Inc, Amazon.com Inc, Tesla Inc, NVIDIA Corp, Berkshire Hathaway Inc, Meta Platforms Inc, United Health Group Inc, Johnson & Johnson.
Top 10 Holding Concentration25.6% of the total ETF holdings
Table #3 – VTS Key Facts

*After fees, dividends are reinvested. 

Want to know more about VTS?

Check out the VTS fact sheet if you’re keen on doing some further reading on VTS.

Jesse’s verdict: VGS vs VTS?

I should be clear that I cannot give you advice on what ETF suits your personal situation best, all I can do is provide some handy information to help you become aware of the differences between various options. 

Unlike VTS, VGS will provide more diversification to different regions, however, most (71%) of its holdings are listed in America anyway. Both ETFs also only consider developed markets (ex-Australia). That means neither provide Aussie or Chinese exposure.

In my opinion, both VGS and VTS are great holdings to include as part of a well-diversified core ETF portfolio.

Personally, I think it’s convenient having all of my international, developed world exposure within one Australian Domiciled ETF. The dividend reinvestment plan offered by VGS is also a nice feature that aligns with my personal situation.

If you’re after some more ETF comparisons, check out all my other articles comparing the best Aussie ETFs.

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About The Writer

Hi, I’m Jesse, but you can call me Jes for short. My passion is simple, I’m on a mission to make the world of investing easily understood by removing the ‘too hard basket’ stigma that surrounds it. P.S. I’d love to meet you on Twitter or Insta or both.

Disclaimer: The information provided in this article is general in nature only and does not constitute personal financial advice about how you should manage your investments. In this article, I intend to provide factual, balanced information without judgment or bias, to the best of my ability. My financial decisions (or use of a particular service or platform) are personal choices based on their specific circumstances and do not automatically make them appropriate for your personal circumstances. I do not recommend nor endorse any financial or investment product. My usage or opinion of any product should not be interpreted as an endorsement, advertisement, or intent to influence. I cannot and will not make a guarantee about the performance of any product, and although I strive to keep information on this website accurate and updated as it changes, I make no guarantee about the correctness of reviews or information posted. I am NOT a financial advisor and do not hold an AFSL. You should also consider seeking the advice of an investment advisor who holds an Australian financial services (AFS) licence or is a representative of an AFS licensee. Be sure to work with someone who understands your investment objectives and tolerance for risk. Your investment advisor should understand these products, be able to explain whether or how they fit with your objectives and be willing to monitor your investment alongside you.  You can find a financial advisor by visiting the ASIC financial adviser register and searching for one in your local area.

4 Responses so far.

  1. Wayne says:

    Thanks Jes, great write up on some facts there, interested because I have been slowly selling down some direct shares and adding of late to VTS & VEU, with some VAS holdings my main target.
    Have to admit the low MER argument helped influence me against VGS but at the end of the day VGS looks like it could make up the difference in those up front costs in the long run, who knows.
    Also this is the route I’m using inside super so the docimiling outside AU is not a bother atm.
    Hope to pick up on your newsletter down the track.
    Cheers

    • Jesse says:

      Thanks for the feedback Wayne! It’s an interesting debate I’ve had a few times. I still prefer (and hold) VGS, however, it’s mainly because I’m lazy. Given their similarities in underlying holdings, it’s hard to see their returns differing too dramatically over time. All the best mate, and appreciate you joining up to the newsletter 🙂

      Cheers,
      Jesse

  2. Janis says:

    Hi Jesse,
    Thanks for the post. Very informative! You mentioned VGS’s dividend reinvestment plan as one the key reasons to go for it. Would you be able to quantity that benefit? That’ll help make the decision more numbers driven.

    Another question: how have you thought about currency diversification in your path to FIRE? For instance, VTI vs VTS. As I understand, given the double taxation agreement between US and AU, there’s no tax drag.

    Thanks a lot!

    • Jesse says:

      Hi Janis, appreciate the kind words. I’m trying to make these articles as handy as possible 🙂 From a cost perspective, the most appealing thing about a DRP is that they incur no brokerage fees. DRPs also help you avoid cash drag on your portfolio assuming you don’t re-invest your dividends outside of the DRP swiftly. Personally, I try to automate my core portfolio as much as possible, DRPs provide one less way for me to get in involved and stuff things up.

      Currency is a tricky one. The majority of my portfolio is invested in AUD through Commsec, with a small amount of USD through Stake simply for diversification purposes. That said, our dollar has remained relatively stable against the USD over time. As I understand it, there is an extra layer of red tape that comes with investing in US-domiciled ETFs TO avoid additional tax drag, however, it’s not overly onerous. You’ll just need to fill out a w-8ben form.

      Hope that helps!

      Cheers,
      Jesse

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