Why the VWRA ETF is a top pick for long-term investors

What happened?

When it comes to investing, simple may be an option for busy investors. A passive ETF that tracks a globally diversified index may provide long-term returns at a low cost.

One way to implement this investment strategy is by investing in an ETF like the Vanguard FTSE All-World UCITS ETF or VWRA, which tracks the FTSE All-World index.

What does the VWRA ETF track? 

Before investing in an ETF, it’s worth understanding the underlying index that it tracks. In this case, the FTSE All World Index.

The FTSE All World Index is a market-cap weighted index that measures the performance of global equity markets, including more than 3,500 large and mid-sized company stocks from 47 countries, and covers both developed and emerging markets.

With a global portfolio of stocks from different sectors and industries, it offers exposure to a diversified set of companies all over the world from consumer staples to technology stocks like Apple and Microsoft. Since it is weighted by market cap, stocks with a larger market cap - which tend to be less risky - will have a larger share in the index.

The index is rebalanced every quarter.

What you need to know about the VWRA ETF

Now that we have learnt more about the index, let’s look at the ETF that tracks it.

VWRA is an ETF wrapper domiciled in Ireland and managed by Vanguard, one of the largest fund managers in the world. The fund was incepted in July 2019 and currently holds US$16B worth of assets.

It seeks to replicate the performance of the FTSE All World Index and has a small annual fee of 0.22%, way lower than most other ETFs or funds because of its passive nature which seeks to just replicate the performance of the underlying index rather than try to beat it.

It use a physical replication method and directly owns the underlying securities in the index.

Key characteristics of the VWRA ETF

The table below shows the key ratios and characteristics of the VWRA ETF.

The VWRA ETF has a holding of 3,732 stocks as of 28 February 2023, allowing you to get diversified exposure to a large basket of global equities with a single ETF purchase. 

What are the advantages of investing in the VWRA ETF?

We think that the VWRA ETF has a few key benefits for long-term investors.

#1 - Global and sector diversification

VWRA invests in stocks from around the world, including developed and emerging markets. By investing in VWRA, you can spread your risk across a wide range of companies and countries, which can help to reduce the overall risk of your portfolio while still providing exposure to a broad range of markets and companies.

The table below shows the regional exposure of VWRA.

The table below shows the industry exposure of VWRA.

#2 - Low expense ratio of just 0.22% p.a.

Costs are an important consideration for any investor, and especially so for passive investors. If you are passive investor, you are not trying to beat the market, you’re trying to match it. 

As a result, every dollar that you pay in fees is a dollar that is not invested in the market. Having low fees means you'll be able to keep more of your investment returns and compound your gains over time.

#3 - Irish-domiciled for tax efficiency

VWRA is domiciled in Ireland, which has a favorable tax treaty with countries like Singapore, where withholding tax on dividends is 15%. 

This is lower than comparable US-domiciled global ETFs like the Vanguard Total World Stock ETF (VT) where dividend withholding taxes on dividends are 30%.

Compare the VWRA ETF to the the VT ETF here. 

#4 - Accumulating fund

VWRA is an accumulating fund which means that any dividends paid by companies in the index are automatically reinvested in the ETF, rather than being paid out to investors. 

This has two benefits - it reduces transactional costs (more can be reinvested in ETFs) and reduces dividend tax liabilities for investors who need to pay tax on dividends.

What are the disadvantages of the VWRA ETF?

However, there are a key things to take note as it may not be for all investors.

#1 – Lack of customisation

For example, VWRA is passively managed, meaning it only seeks to replicate the performance of an index, which is the global equities market. 

This means while it could be cost effective, you won’t be able to customize the holdings in the fund to outperform the market - your returns can only be as high as the market returns.

#2 – Investing in equities can be highly volatile

The ETF is also not suitable for short-term investors looking for a quick return as it is a long-term investment strategy. 

You’re exposed the risk of investing in equities, which is highly volatile. For example, the price drawdown on VWRA can be as high as 40%, which may not be suitable for risk adverse investors.

How to buy the VWRA ETF as an investor in Singapore?

If you are interested in the VWRA ETF, you can do it through a brokerage that offers trading in the London stock exchange, such as Interactive Brokers. 

What would Beansprout do?

We like the VWRA ETF for the reasons explained above: low cost, globally diversified and passive. This makes the VWRA an ETF to consider for long-term investors looking to grow their wealth. 

It may not offer quick returns for active traders, but for investors who are looking at an easy way to benefit from investing in the global equity market, this is definitely an ETF worth looking at!

You can find out more about the VWRA ETF here. 

To explore other ETF ideas curated by us, check out Beansprout's ETF tool.