The Vanguard MSCI Index International Shares ETF (ASX: VGS) hit a 52-week high yesterday, yet investors may not have missed the boat on investing in this exchange-traded fund (ETF).
For readers who aren’t sure what this ETF is, the investment fund represents a portfolio of close to 1,500 businesses listed around the world in places like the US, Japan, the UK, France, Canada, and so on.
Why is the VGS ETF rising?
The return of an ETF simply reflects the performance of its underlying holdings. If the combined performance of the ETF’s investments show capital growth, then the ETF should rise in value as well.
Each position in the portfolio influences the overall return, but the biggest weightings will have the largest effect.
Since the start of 2023, the share prices of Apple, Microsoft, and Alphabet — the largest three positions — have each risen by more than 30%. This has helped the Vanguard MSCI Index International Shares ETF climb by 16% since the start of the year.
Despite inflation and rising interest rates, global investors seem to be becoming more confident about the future.
Is it too late to invest in the Vanguard MSCI Index International Shares ETF?
If you asked me whether I would rather buy at today’s price of over $105, or at around $91 which is where it was at the start of the start of the year, it’s pretty obvious which value is better.
However, I think it would be a big mistake to think there won’t be any future long-term gains.
Yes, there could be a fall of the ETF later this year. The strength of the market gains this year may not make a lot of sense considering the effects of interest rate rises have hardly been felt throughout the global economy as yet.
As an example, the US commercial property sector could be facing a lot of difficulties in the medium term.
But, ignoring the possibility of a one-off fall, look at the long-term performance of the VGS ETF, which we can see on the chart below.
We can see past peaks in 2018 and 2020 and the relatively steep decline after that, followed by a stronger, steady rise. Indeed, today’s valuation is 20% higher than the 2020 peak and 42% higher than the 2018 peak.
However, past performance doesn’t mean we’re definitely going to see ongoing growth in the short term. But earnings growth of the underlying businesses has helped push the ETF higher over time.
So, I have no idea if we’re going to see the Vanguard MSCI Index International Shares ETF fall back to $90 this year, but I do think it’s generally going to travel steadily higher in the coming years, driven by higher earnings. That being the case, I’d say it’s not too late to invest for the long term.
