International shares are one of the most common building blocks in Australian investors’ portfolios. With dozens of options available, choosing an international ETF can quickly become confusing.

Do you choose the biggest fund? The cheapest option? A portfolio tilted towards quality companies? Or should you avoid the US altogether?

In this episode of Investing Compass, we explore some of Australia’s most popular international ETFs, including how they differ, what role they can play in a portfolio, and why the right choice depends less on finding a winner and more on understanding what you own.

You can find the full article here.

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You can find the transcript below:

Mark LaMonica: Thanks to PocketSmith for sponsoring today’s episode. PocketSmith tracks your spending, income, and investments all in one place, so you get a holistic view of your finances. PocketSmith has a special deal for Investing Compass listeners. Get 50% off your first two months of the PocketSmith Foundation or Flourish plans. To get your deal, go to PocketSmith.com/investingcompass or find the link in the podcast notes.

Welcome to another episode of Investing Compass. Before we begin, a quick note that the information contained in this podcast is general in nature, does not take into consideration your personal situation, circumstances, or needs. So I need to get through this one quickly because Shani needs to get on a plane. So we’re just, you know, revolving around Shani’s schedule, of course. You’re going to Hobart.

Shani Jayamanne: I am going to Hobart.

LaMonica: Now, interestingly, your mother and father-in-law are moving to Hobart.

Jayamanne: Yeah, they just bought a house there.

LaMonica: Yeah, so you’re trying to get this trip in before they go. So you don’t have to see them.

Jayamanne: This was booked before, but yes. My husband wants to play Seven Mile, which is a new golf course that has opened there.

LaMonica: I’m familiar with eight mile, not Seven Mile. Let’s try to get through this so that you don’t miss your fight.

Jayamanne: So we’re going to talk about the second most popular ETF in Australia first. It’s an ETF that offers international exposure, and this should really take no one by surprise. More investors are looking to get exposure to more than what the Australian market offers.

LaMonica: And ETFs are an easy, cheap, and quick way to do this. Australian investors are much more comfortable with investing directly in Aussie shares, and this makes sense, of course, because you know the companies, it’s cheap to transact. But that means that to get access to international markets, a lot of Australians are turning to international ETFs that want this exposure.

Jayamanne: So when we look at the Aussie market, international markets can fill a few holes in a portfolio in terms of exposure. It gives exposure to other markets and companies and exposure to sectors and industries that Australia might be lacking in. So technology and healthcare are good examples.

LaMonica: And it also provides diversification for investors that are looking past Australia’s very concentrated market, which of course is heavily focused on financials and materials.

Jayamanne: And the issue and what this podcast is trying to address is that international ETFs are all built differently. The name encompasses every market in the world, and that means that you find very different ETFs with very different exposures under the same banner.

LaMonica: And we always advocate for investors to understand what they’re investing in and how that aligns with the goals you’re trying to achieve. And we won’t bury the lead here. The best ETF is different for each investor. But what we’re going to do is we’re going to go through the most popular international equity ETFs and the investors that they may suit.

Jayamanne: So the Vanguard MSCI International Shares ETF with the ticker symbol VGS provides exposure to more than 1,200 companies across developed markets, keeps costs low, and offers investors a simple way to access global markets. So that’ll be our first.

LaMonica: Okay, and VGS offers broad market international exposure, but there are circumstances where other global equity ETFs may deserve consideration for certain investors. And the rest of the ETFs show these choices in action. So some investors may want to tilt towards higher quality companies, and there’s the Vaneck MSCI International Quality ETF with the ticker symbol QUAL.

Jayamanne: Others might prefer a more concentrated portfolio of global blue chips represented by iShare’s Global 100 ETF with the ticker symbol IOO. And some might want to reduce their dependence on the United States through the Vanguard All-World ex-US ETF with the ticker symbol VEU.

LaMonica: Okay, so those are all the details we’re going to go through, but we’re going to start with VGS. And if you’re looking for a single ETF that captures the growth of global share markets, VGS is difficult to beat. Fund tracks, the MSCI World ex-Australia Index, and that provides exposure to approximately 1,260 large and mid-sized companies across 22 developed markets, and that’s as of 30th of April 2026.

Jayamanne: The portfolio includes many of the world’s most successful businesses, including tech giants, healthcare leaders, consumer brands, and industrial companies. It is highly concentrated in the U.S. with exposure to the country making up more than 70% of the index.

LaMonica: And so one of the key characteristics of VGS is that it is a market cap weighted approach. We’ve spoken a lot about market capitalization versus equal weighted, but basically market capitalization just means that you own companies in proportion to their size. So as companies grow, they naturally become larger positions in a portfolio. Turnover in a market capitalization weighted index is relatively low compared to active or factor-based investing or an equal weighted index, and that minimizes taxes and transaction costs.

Jayamanne: All right. So one thing that our analysts call out about VGS is that they like that Vanguard also adds value through implementation. The objective of VGS is to track the index as closely as possible, but the team uses several techniques to minimize tracking error. This includes using futures to keep cash invested, managing index rebalancing efficiently, and engaging in securities lending. Importantly, all net securities lending revenue is returned to investors.

LaMonica: So what you get at the end of the day is you get a portfolio that provides broad diversification at a very low cost. So the cost, the fee right now is 0.18% per year, and that is among the cheapest global equity funds available to Australian investors.

Jayamanne: And they get a Gold rating from our analysts, and they consider it one of the strongest options available for investors seeking broad international market exposure. But for investors who don’t have a specific view on regions, sectors, or investment styles, VGS is a strong choice.

LaMonica: Okay, so we’re going to move on now. We’re going to move first to QUAL. So QUAL is the VanEck MSCI International Quality ETF. So that provides international exposure with a quality tilt. So some investors are comfortable accepting a little more concentration in exchange for owning businesses with stronger financial characteristics. And that’s where VanEck MSCI International Quality ETF enters the picture.

Jayamanne: So rather than holding the entire market, QUAL focuses on approximately 300 companies selected from MSCI Wells Ex-Australia universe. To make the cut companies have got to score highly on measures that include return on equity, earning stability, and low financial leverage.

LaMonica: The philosophy behind quality investing is relatively straightforward. Companies that consistently generate high returns on capital, maintain strong balance sheets, and deliver reliable earnings growth may be better positioned to create long-term shareholder value. The portfolio looks meaningfully different to a broad market ETF like VGS. Technology and healthcare companies receive larger allocations, while financials tend to be underrepresented because banks and other financial institutions typically have a lot of debt.

Jayamanne: QUAL also has a stronger quality profile than the broader market. So more than three-quarters of the portfolio carry a wide economic moat rating from Morningstar, reflecting durable competitive advantages and strong business franchises. Almost 15% have a narrow economic moat, meaning that close to all investments carry an economic moat according to Morningstar analysts. Wide moats are awarded to companies where our analysts believe they’re able to maintain and grow their earnings for at least the next 20 years, and a narrow moat is for 10 years.

LaMonica: Now, there are, of course, trade-offs when you take a quality tilt or any tilt. And in this case, a portfolio holds only about 300 companies. So it is significantly more concentrated than a broad market ETF with no tilt. Sector exposures can be a lot different from the broader market, and that means that performance will look different to the market. May diverge for extended periods of time. So you just need to be aware of this if you’re including this ETF in your portfolio.

Jayamanne: The strategy also tends to have a growth bias. Many of its largest holdings include companies such as Apple, Nvidia, Meta, and Microsoft. These businesses have attractive growth prospects, but you’ll pay high prices for this as an investor.

LaMonica: Our analysts give it a bronze medalist rating, and they do view this as a strong way to access global quality stocks at a relatively reasonable cost of 0.4% per year.

Jayamanne: The third ETF is iShare’s Global 100 ETF with the ticker symbol IOO, which is a concentrated portfolio of global leaders. While VGS owns more than 1,200 companies and QUAL owns around 300, IOO holds only about 100 of the world’s largest multinational businesses.

LaMonica: And the ETF tracks the S&P Global 100 Index, which selects large companies with substantial international operations and a strong global footprint. So it includes many of the world’s most recognizable brands. We’ve got NVIDIA, Apple, Microsoft, Amazon, but in much more concentrated percentages than you get in those other ETFs that also hold it. And that’s not where the concentration ends. So technology represents approximately 48% of the portfolio, and that is substantially more than the overall index. U.S. equities account for 80% of assets, and the top 10 holdings represent almost 60% of the fund.

Jayamanne: So as is the case for this ETF and for QUAL, performance can look really different to the market. Over the past decade, this concentration has worked in the favor of investors that have had exposure because the tech mega caps generated exceptional returns, but there is no guarantee that this is going to continue.

LaMonica: And Shani, you wrote an article on this, and you put in a graph, which is your New Year’s resolution. More graphs and charts in your articles.

Jayamanne: It was a request. I just want to give the people what they want.

LaMonica: Exactly. So there is a link to that article in the show notes. You can go look at that graph, but it shows how well investors would have done in each of these ETFs. So if you invested in IOO 10 years ago, you would have made 317% compared to 181% for VGS, 108% for VEU, which is an ex-US international ETF, which we’ll talk about in a minute.

Jayamanne: So investors that are considering IOO should recognize that they’re making an implicit bet that the world’s largest companies will continue to outperform. And to their credit, these businesses are often highly diversified and financially resilient, but it is very concentrated.

LaMonica: And like QUAL, it does charge more than those broad passive ETFs. So in IOO’s case, 0.40% per year. So it is more expensive than broad market ETFs, but you do get something out of that. Currently, Morningstar analysts assign IOO a neutral rating, so our analysts view it as a reasonable option for investors seeking concentrated exposure to global blue chip companies, but not necessarily the best starting point for broad international diversification.

Jayamanne: All right, our last ETF for today is the Vanguard All World ex-US shares ETF with a ticker simple VEU, which offers ex-US global exposure. And this ETF is addressing one of the most common concerns among investors today, and that is the dominance of the U.S. market. All of the ETFs that we’ve mentioned so far have significant exposure to the U.S.

LaMonica: And every benchmark is a little bit different, but generally the U.S. represents around 70% of global developed market indices. So this is an ETF for investors who don’t feel comfortable with that level of concentration.

Jayamanne: VEU excludes the U.S. entirely. Instead, it provides exposure to 3,835 companies across developed and emerging markets outside of the U.S. The portfolio includes significant allocations to Japan, China, the UK, Canada, France, and other international markets.

LaMonica: And it is very diversified at an individual holding level. So every holding accounts for less than 2% of the overall assets, and the portfolio spans thousands of companies across dozens of countries. This hasn’t been seen in the other ETFs that we’ve been talking about today.

Jayamanne: And the obvious trade-off is that investors completely miss the world’s largest equity market. For US investors, an ex-US strategy often makes sense because they may already have significant domestic exposure. For Australian investors, the case is less straightforward. Excluding the U.S. means excluding many of the world’s most innovative and profitable companies, including many of the tech leaders that have driven global equity returns over the past decade.

LaMonica: But that doesn’t mean that VEU lacks all merit. So the ETF can serve a purpose for investors who already have a substantial U.S. exposure elsewhere, or those who want to diversify away from that U.S. dominance. Cost is another strength. So it is just 0.04% per year. VEU is one of the cheapest global equity ETFs available to Australian investors.

Jayamanne: And Morningstar analysts assigned the fund a Bronze medalist rating. While the exclusion of U.S. equities may not suit every investor, the strategy provides an efficient and low-cost way to access the rest of the world markets.

LaMonica: So that of course brings us to the most important question, Shani. Which ETF is right for you and the best ETF ultimately depends on what role you want international equities to play in your portfolio, and of course the rest of the holdings that you have in that portfolio.

Jayamanne: So if an investor is looking for a diversified and low-cost way to access global markets, VGS offers broad exposure, strong implementation, and a low fee, ticking the boxes for a strong core holding. Investors who want to emphasize strong businesses and are comfortable with some additional concentration may find QUAL appealing. The quality focus has historically produced a portfolio of highly profitable companies with durable competitive advantages.

LaMonica: And of course, investors that want a more concentrated portfolio with those global leaders that we mentioned earlier. They may gravitate towards IOO. That fund offers exposure to many of the world’s most successful companies, but of course that comes with concentration risk. And VEU may suit investors looking to reduce their dependence on the U.S. market or complement existing U.S. equity holdings. So the good news is that investors don’t have to pick just one Shani. So some may choose VGS as a core holding and then add a tilt so they could use QUAL as a satellite position to provide that quality tilt. They might pair VGS with VEU to adjust those regional allocations. So there would be some overlap, but there are all sorts of different ways investors can use this to tilt their portfolio in a certain direction.

Jayamanne: And ultimately the most important decision is not which of these ETFs is marginally better than another. It is developing a clear understanding of why you are investing internationally in the first place.

LaMonica: And then one more point we wanted to make. Each of the most popular international ETFs offers a distinct path to international exposure, but this is not an exhaustive list. So these are the four most popular global ETFs in Australia. But Morningstar also awards medalist ratings to seven active and twelve passive global equity picks, including four passive options in the world large blend category. We also award medalist ratings to a few options in Equity North America and Equity World Mid Small Cap categories.

Like those four distinct ETFs, these ETFs may fill the right hole in your portfolio and fit with your other holdings and let you get to the goal that you want to achieve. So thank you very much for listening. We really appreciate it. Hopefully you learned a little bit more about ETFs today, and there is Shani’s article in the show notes for more detail.

(Disclaimer: Any advice in this podcast is general advice or regulated financial advice under New Zealand law prepared by Morningstar Australasia Proprietary Limited and/or Morningstar Research Limited without reference to your financial objectives, situations or needs. You should consider the advice in light of these matters and any relevant product disclosure statement before making any decision to invest. To obtain advice for your own situation, contact a financial advisor.)

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