In my opinion, the Vanguard FTSE All-World UCITS ETF with the ticker VWRA is the best, low cost, long-term ETF holding for most non-US investors.
There are multiple versions of this ETF – the distributing version (VWRD) distributes dividends while the accumulating version (VWRA) automatically reinvests all dividends.
VWRA is an exchange-traded fund, launched in July 2019 and employs a passive – or indexing – investment approach, and seeks to track the performance of the performance of the FTSE All-World Index.
The Index is comprised of large and mid-sized company stocks in developed and emerging markets with close to 3,900 holdings in nearly 50 countries. This covers more than 95% of the global investable market.
The fund is domiciled in Ireland and traded on the London Stock Exchange (LSE) under the ticker VWRA with more than US$14.0B invested as of today.
The Total Expense Ratio, or what Vanguard calls as Ongoing Costs of Fund, is just 0.22% annually.
As of 31 March 2022, the fund has around 3771 holdings, weighted by market capitalization, a price/earnings ratio is 17.4x and price/book ratio of 2.7x.
Top holdings and weights
Being a globally diversified fund, it invests in companies all around the world with the top 10 holdings comprising 17.4% of the portfolio.
In terms of industry exposure, the fund holds:
- 23% of its holdings in Technology
- 14.6% of its holdings in Financials
- 14.4% of its holdings in Consumer Discretionary
- 12.6% of its holdings in Industrials
- 11.5% of its holdings in Healthcare
and the rest in other industries.
In terms of market allocation exposure, the fund holds:
- 59.9% of its holdings in US
- 6.1% of its holdings in Japan
- 4.0% of its holdings in the UK
- 3.3% of its holdings in China
- 2.8% of its holdings in Canada
The top 5 combined is approximately three quarters of the fund's net assets. Notice that the fund is very closely in-line with the benchmark index.
By buying and holding this single ETF, you are able to gain globally diversified equity exposure without taking on any country-specific, regional-specific, or industry-specific bets.
You’ll achieve maximum diversification possible, putting you on the efficient frontier of portfolio construction (with the highest return to risk ratio).
You’ll also never underperform the market since you’re owning the entire market.
The fund has returned 39.9% since its inception. In terms of annual returns, the fund has returned 15.99% in 2020 and 18.33% in 2021.
The following chart tracks the growth of US$10,000 over the course of the fund's lifetime.
That’s pretty amazing returns, for a manageable level of volatility against all the trade war, large tech drawdowns and more.
Comparing to the STI ETF
Comparing VWRA to ES3 (STI ETF), over the past 2 years, you can clearly see that the owning equities that track a global index will give you much better returns over a long period of time.
However, in recent times, the tech-heavy VWRA suffered poorer performance due to rising interest rates which dampened the performance of tech companies. Singapore's STI ETF which is financials heavy demonstrated strong performance as financial companies tend to benefit from rising interest rates.
Comparing to ARKK
Comparing to ARKK (ARK Innovation ETF), a dear darling of many tech bros led by critically acclaimed fund manager Cathie Wood, VWRA showed much better resilience to the shock in the stock market from rising inflation, the Ukraine war and COVID-19 pandemic.
Despite the phenomenal growth of ARKK in 2020 and early 2021, it suffered from a massive retracement and has now underperformed a simple VWRA strategy by more than 20%.
If you bought ARKK at the peak, you are down 65%!
ETF investing vs other options
Holding ETFs are the perfect vehicle for long-term holdings and most investors should avoid investing directly in stocks to properly diversify their investments and keep investing costs low.
If costs matter to you, you’ll be pleased to find out that the cost of owning this fund is just 0.22% a year, or $22 per $10,000 invested, which is automatically reflected in the share prices.
This compares favorably to most conventional unit trusts (between 1.5% to 2% a year) and ETFs (between 0.3% to 0.7%).
If you use a robo-advisor, then you’ll need to pay an additional platform fee on top for managing that portfolio for you - this is between 0.6% to 0.8% a year.
If you have no time to stock-pick, just buy the entire stock market index which automatically weights them by market capitalization, meaning more of your money goes to bigger, more established, and higher-quality companies.
If you don’t know whether the US or China is a better country to invest in, why not invest in them both? Since you might not be able to consistently bet on the right horse each time for the next several decades, why not let the market help you balance between the two?
Being Ireland-domiciled also means that you don’t have to worry about expensive dividend withholding taxes of up to 30% on your dividends.
The accumulating version of this fund also automatically reinvests the dividends into buying more units of the fund, increasing the NAV of the fund.
When you don’t have to deal with small amounts of dividends, you save on valuable reinvestment and transaction costs.
A great deal for your money
When you put all these factors together, you’re getting a really good deal on your equity investment that’s cheap, globally-diversified, and passive.
In summary, the following reasons are why VWRA is the single, biggest core holding in my portfolio:
- VWRA is the epitome of globally-diversified passive investing
- Low management cost of 0.22% per year and Vanguard has a history of lowering costs
- Passive indexing strategy without betting on any sector or region of the market
- Automated self-rebalancing
- Great annualized returns
- Ireland-domiciled for reduced dividend withholding tax
- Globally diversified with almost no risk of a total loss
- Automatic compounding of dividends which are automatically reinvested
It is an excellent choice for people who want to invest in the stock market for the long term but don’t have the time or knowledge to consistently do well with stock-picking.
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