The Vanguard MSCI Index International Shares ETF (ASX: VGS) has reached yet another new 52-week and all-time high. In 2023 to date, it has risen by 20%.
For readers who haven’t heard of this exchange-traded fund (ETF), it’s a fund that tracks a (large) group of businesses from a number of different countries.
We’re talking about tech companies like Apple, Microsoft, Alphabet, and Amazon.com from the US. But it also invests in names like AstraZeneca, McDonald’s, Novartis, Shell, Accenture, Toyota, Walt Disney, and HSBC.
Can the VGS ETF keep rising?
I’m not going to make a prediction saying that I think the fund is going to go up a particular amount over a certain timeframe.
We can’t rely on past performance to be a guarantee of future results, but look at how it has gone since November 2014. Between November 2014 and June 2023, it delivered an average return of just over 12%.
The underlying businesses like Apple, Microsoft, and more than 1,450 others have been growing their profit for shareholders over time. Investors typically value how much a business is worth based on its profit.
It’s quite likely, in my opinion, that the collective profit generated by the Vanguard MSCI Index International Shares ETF companies can keep rising over time as they launch new products and services for their growing customer bases.
The underlying share price performances of the businesses are what affect the value of the ETF.
I believe that profit growth will help the VGS ETF, though August could just as easily see volatility.
Compounding is a very powerful tool to help companies grow. Businesses make a profit, and they can then re-invest that profit to make more profit. For example, McDonald’s has used some of its profit to invest in new restaurants or even grow into new countries. If a company keeps re-investing year after year, its profits can compound into much bigger numbers.
While we can’t control what share prices are doing, the underlying drivers like profit can help push the value of businesses higher over time.
The Vanguard MSCI Index International Shares ETF has steadily gone up and I think there’s a good chance that in three years or five years, it will be higher than it was before.
The Vanguard MSCI Index International Shares ETF could be one of the most effective ways to invest in the global share market and at an annual fee of just 0.18%.
There may be other investments out there that are able to deliver stronger returns, but this one seems like a very effective back-seat investing choice.