Vanguard FTSE All-World UCITS ETF (VWRL) – Why you should invest
The Vanguard FTSE All-World UCITS ETF (VWRL) is a great vehicle for passive investing. You probably don’t need to do much reading on this site before you start to think we maybe a little biased towards passive investing.
You’d be right of course. We are biased towards a passive approach to investing, splitting investments between stocks and bonds according to risk tolerance.
There are a lot of different funds that enable you to buy stocks, but depending on where you are in the world, you might not have access to certain kinds of funds like Unit Trusts and Open Ended Investment Companies.
However, no matter where you are, or what investment platform you use, you should be able to get access to an extensive range of Exchange Traded Funds (ETFs). These are excellent products that offer great tax and cost benefits.
This week we are going to take a deep dive in to one of our favourites for the stock component of your investment portfolio.
We give you plenty of reasons to invest starting with diversification.
Diversification
Vanguard All World has got over 3000 companies and covers more than 90% of the global investable market capitalisation.
Think about it this way. Whether you a reading this article on a laptop, your iPhone or an Android device the company who made it will be included in VWRL. By the time you are reading this you’ve probably had a nice cup of tea or coffee. Even if its some kind of obscure brand that isn’t listed in the fund in all likihood the company that made the packaging will be.
Unless you live under a rock, you will be encountering VWRL companies 24/7 and the best news is you are not alone. The vast majority of the world’s population will be buying products and services from countries you own if you have shares in Vanguard All World.
This means it is highly diversified. You’re not going to be putting all your eggs in one basket. Instead you are spreading it around the world. See the top 10 VWRL holdings list below:
Top 10 holdings
| Companies | Portfolio weight |
| Apple Inc AAPL | 3.73% |
| Microsoft Corp MSFT | 3.33% |
| Amazon.com Inc AMZN | 1.70% |
| Alphabet Inc GOOGL | 1.14% |
| Tesla Inc TSLA | 1.03% |
| Alphabet Inc Class C | 1.00% |
| Johnson & Johnson JNJ | 0.76% |
| UnitedHealth Group Inc UNH | 0.75% |
| Taiwan Semiconductor Manufacturing Co Ltd 2330 | 0.75% |
| NVIDIA Corp NVDA | 0.73% |
The most you have allocated to one company at the moment is 3.73% (for Apple). If the biggest stock Apple went bankrupt it would only impact 3.73% of your portfolio. The impact of any other company going bump would be even less.
You can’t say that about most funds.
Global
VWRL is global with a capital G, with exposure to companies in 47 Countries. If the UK starts struggling after Brexit, you can relax, knowing that you’re invested in another 46 countries. If China takes over the US, you can relax knowing you are invested in all the major Chinese listed companies that matter.
Emerging Markets
The 47 countries in in the index the fund follows include emerging markets, and that’s not something most investors are likely to want to miss out on. There are some cheaper global funds out there, but they don’t often contain emerging markets.
Now some will use the argument that developed market companies do lots of business in emerging markets negating the need to invest in emerging markets companies themselves.
And whist there’s some truth to that, if only it was that simple. Nobody knows where the next Tesla or Apple will come from. Perhaps, it will be the US again, but perhaps it will be China, India or dare I say it the UK!
It’s like trying to find a needle in a haystack. So why try and guess when you can own the world .
As well as emerging markets, you’ve got North America, Europe, Pacific and even the Middle East. Basically, when it comes to geography, you’re covered!
Sectors
For the same reasons as mentioned above you don’t want to be focused on any one sector, you want to spread you bets. And luckily, as well as geographic exposure VWRL is highly diversified over many sectors.
The following should be enough for most investor’s needs:
Oil & Gas, Chemicals, Basic Resources, Construction & Materials, Industrial Goods and Services, Automobiles & Parts, Food & Beverage, Personal & Household Goods, Health Care, Retail, Media, Travel & Leisure,Telecommunications, Utilities, Banks, Insurance, Financial Services, Technology, Real Estate
Real Estate
If I had a tenner for every time somebody told me to add real estate to my portfolio I really would be rich man.
And the thing is I totally agree.
Of course they are talking about adding dedicated real estate exposure through REITs, but if you invest in VWRL you’ll have shares in all the real estate companies that matter.
FTSE All-World index contains about 3% real estate, but the thing is that doesn’t include all the property owned by all the other companies in the index.
There aren’t many companies out there that don’t have some exposure to real estate. Whether it’s factories they own or offices they rent. A lot more than 3% of the companies in the fund will own or real estate.
Even more will be heavily exposed to real estate meaning anything above what is in the FTSE All World index will almost definitely mean you are over exposed to real estate. Not to mention those that own there own houses!
Gold
As with real estate, there are a log of gold bugs out there that think you should have gold in your portfolio for a rainy day (or more precisely for when the world ends!)
But again, the fund has got you covered. Though it doesn’t contain physical gold, that doesn’t mean there isn’t any gold exposure in the fund. 4 of the top 5 gold companies in the world are included.
These companies will make money when the gold price goes up. In fact, unlike the shiny metal itself they also have the potential to make money when the price of gold isn’t increasing.
In fact financial gurus Bill Bernstein and David Swensen agree that gold companies likely do a better job in many cases than gold itself does.
Commodities
As well as gold, the fund contains plenty of exposure to commodities. Take oil for example, 7 of the top 10 oil and gas companies can all be found in the fund.
Low cost investing
It was Albert Einstein that said:
Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.
And never a more clear reason to invest was put forward. However, Vanguard’s late founder and instigator of the first ever index fund, John C.Bogle, twisted these words to illustrate something else very important in investing:
What happens in the fund business is that the magic of compounding returns is overwhelmed by the tyranny of compounding costs.
In other words, keeping fees low should be a priority.
The expense ratio or Ongoing Charges Figure (OCF) is 0.22%. That’s £2.20 for every one thousand pounds you have invested. Whilst it’s not the cheapest global fund, it would be hard to argue that it’s not extremely low cost.
Yes, there are cheaper options out there but more often than not they don’t contain emerging markets.
Market-Cap Weighted Strategy
The fund uses a market cap-weighted strategy. In simple terms you invest according to what the wider market thinks. And when you stop and think about it is a great thing to do.
That’s because the market is made up primarily of financial professionals, with all the latest equipment, data, top notch educations and all rest of it.
In turn it means you use more of your money to buy what’s good and less of your money to buy what’s bad.
Really good companies will float to the top of the index and really bad companies will drop out of the index.
It’s a great system because you put more of your money in to companies as they are growing and less of your money into companies that start decaying.
Some people have a problem with this idea of doing things according to what the market thinks because on occasion there have been a few superstar investors that have taken advantage of gaps in this approach. However, such times have been few and far between. And in fact, they are getting fewer and farer everyday.
9 times out of 10 over the long term the market beats professionals, meaning if you invest in VWRL you will likely beat 90% of professional investors. If you don’t believe me it might be worth popping over to S&P Global and having a look at their SPIVA research.
As a result, unless, you are the next Warren Buffet, the cap-weighted approach is perhaps the simplest, safest way to invest.
VWRP
I would be remiss if I didn’t mention VWRP. It’s practically the same fund. There’s just one slight difference you need to be aware of.
VWRL pays a dividend. Currently it is just over £1.70/share. This means the yield is just under 2%.
Some investors like to receive dividends into their account directly whereas others want them automatically reinvested. Such funds are called ‘accumulating funds.’
The good new is there is an accumulating edition, VWRP.
Global All Cap
One of the biggest criticism of the fund is that it only includes large and medium sized companies. There are some global all cap funds which cover the total global stock market.
And while those who say such things do in fact have a point it’s not a big one by any means. Let me explain.
- They are only really talking about 10% of the market.
- Small companies tend to be small because they aren’t as good as the bigger ones.
- If a small company gets good enough and so big enough it will enter Vanguard All World.
- Vanguard FTSE All word does contain mid-cap companies and these do tend to perform pretty similarly to large caps. (Check out the graph below)
- There will still be plenty of room for growth which you will capture anyway. Comparing one of the smallest companies in VWRL, Ashmore Group to the biggest, Apple we find that the bigger of the two is worth 1250 times as much right now.
- In other words there’s plenty of opportunity for growth capture in this fund.
Small vs Mid-Cap
Now the following graph compares different sized companies in the UK. I happened to have it handy from another article which you read here if you are interested.
Note the red (UK small cap) and grey (UK mid cap) lines. They are almost identical.
Lifestrategy 100
Following on from above, an alternative to VWRL is another product from Vanguard called life strategy. You can read more about it here, but the headline is it is very similar to VWRL but with the added bonus of smaller companies.
The problem is whether or not you have access to it or not. British expats for example, usually don’t have access to the UK version because in the UK it is an index fund rather than an ETF and index funds aren’t as widely available as ETFs.
Now that said, there are European versions of Life Strategy that come in ETF format that everybody has access too. For the variants of Lifestrategy that contain bonds such as the Lifestrategy 60 a UK investor might want to avoid them due to currency risk involved in European bonds, but with the Lifestrategy 100 you don’t have this problem because the 100 in the name refers to the percentage of stocks in the fund. 100% stocks leaves no room for any bonds.
So if you are particularly keen on investing in smaller companies and your investment platform has Lifestrategy 100 you could think about puting your money there.
Yearly returns
Yearly returns are shown on the following chart.
Though it’s not doing very well this year. It did great last year. You’ll also notice it follows its benchmark almost perfectly. Now, that’s a sign of a great fund.
But is it a good investment?
All in all, we think the VWRL is a great way to invest.
You get to be invested in just about all the companies that matter.
If the world is operational then your companies will be selling products and services internationally 24/7.
And shares in those companies means shares in profits for you.
