On sites like Seeking Alpha, it’s easy to see recommendations for a wide variety of tickers, where it can be tough to distinguish the good from the bad. Plenty of investors I talk to deal with their portfolios being bogged down with too many tickers to understand, tickers they barely remember why they invested in to begin with.
For those looking to build a one-ticker stock portfolio, we recommend investing in the Vanguard Total World Stock ETF (NYSEARCA: VT).
Vanguard Ship – Biglaw Investor
Vanguard Total World Stock ETF Fees
It’s slightly unorthodox, but the first aspect of the Vanguard Total World Stock ETF we want to discuss is its fees.
Vanguard Fees – Vanguard
Vanguard makes its name by having some of the lowest fees on the market, and that’s exceedingly clear with the company’s fee structure. The company’s “Total World Stock ETF” has annualized fees of just 0.08%. For reference, that means if you invest $1 million, your annual fees are just $800/year. Not free, but certainly better than much else.
We chose to pick fees first, because fees are something that many investors overlook. Saving money here is incredibly important, and it’s something we recommend all ETF investors pay close attention to.
Vanguard Total World Stock ETF Portfolio
Now to dive in, let’s look at the company’s portfolio.
Vanguard Asset Allocation – Vanguard Investor Presentation
The Vanguard Total World Stock ETF has 8816 companies with a massive median market capitalization of $53 billion. The average P/E ratio is 21.2x with the average price/book ratio of 2.2x. The companies as a group have a return on equity of 15.4% and a very respectable earnings growth rate of 12.3% worth paying close attention to.
The portfolio is well-distributed, but heavily skewed, like the global market value, to North America, with a 60.1% value. The next 3 largest are Europe at 16%, the Pacific at 12.3%, and the Emerging Markets at 11.2%. The sectors give the portfolio strong diversification benefits and access to a significant component of the growing markets.
The portfolio is well-balanced with the top 10 holdings at ~14.6% and the largest being Apple (NASDAQ:AAPL) at just a hair over 3%. Given that Apple has a roughly $2 trillion market capitalization, this shows the diversification of the portfolio’s investments.
Vanguard Total World Stock Valuation Benefits
At the same time, it’s worth noting that the Vanguard Total World Stock ETF has significant valuation benefits.
The S&P 500, partially due to the earnings collapse from COVID-19, has an unparalleled valuation with a P/E ratio of just under 36. Even before COVID-19, that number was more than 25. In contrast, the Vanguard Total World Stock ETF has a P/E ratio of just over 22. That means the diversification benefits means the ETF is just 60% as expensive.
Combined with double-digit earnings growth, and it highlights that the Vanguard Total World Stock ETF is undervalued versus the overall stock market. That means that it has additional potential for long-term growth potential and rewards. Those benefits make investing now a unique opportunity.
Vanguard Total World Stock Risk
Investing in equities is risky, and it’s something that investors in the Vanguard Total World Stock ETF should pay close attention to.
The first is that international ETF exposure adds risk. International markets have significant risk. They tend to have higher inflation rates and worst balance sheets. They are much more likely to see economic suffering during an economic crisis and they are much more likely in the worst-case scenario to go bankrupt.
That can devastate those who invest in those holdings. The distributed nature of the Vanguard Total World Stock ETF means this is a smaller risk, but it’s still a risk. One can argue that on the flip side, it’s a “cost” of diversification outside of the U.S. markets.
The other risk is that worldwide equity markets are still, on a historical basis, very expensive. In fact, the Vanguard Total World Stock ETF is nearly 60% above its 52-week lows. Given the uncertainty around COVID-19, there’s always the chance that that reverses, punishing investors significantly.
The Vanguard Total World Stock ETF is a unique opportunity for investors suffering from “ticker overload.” For those trying to pick the good from the bad, sometimes, it’s simply easier to just pick a quality ETF and invest in that ETF. In this case, we recommend investing in the Vanguard Total World Stock ETF.
The ETF comes with a well-distributed portfolio of stocks at a much lower valuation than the U.S market. Additionally, it comes with an incredibly low 0.08% expense ratio ($10k costs you $8 annually in expenses). It does have some risk from its international exposure, but that’s also a benefit that can drive long-term rewards.
The Energy Forum can help you generate high-yield income from a portfolio of quality energy companies. Worldwide energy demand is growing and you can be a part of this exciting trend.
The Energy Forum provides:
- Managed model portfolios to generate high-yield returns.
- Deep-dive research reports about quality investment opportunities.
- Macroeconomic market overviews.
Disclosure: I am/we are long VT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.