Why VWRA is my favorite buy-and-hold ETF

In my opinion, the Vanguard FTSE All-World UCITS ETF with the ticker VWRA is the best, low cost, long-term ETF holding for most Singaporean investors.

There are multiple versions of this ETF – the distributing version (VWRD) distributes dividends while the accumulating version (VWRA) automatically reinvests all dividends.

Before VWRA was launched, I owned VWRD. I’ve since switched to VWRA as the anchor holding for my core DIY portfolio.

Overview

VWRA is an exchange-traded fund, launched in July 2019 with the aim of replicating the performance of the FTSE All-World Index – an investment index consisting of large and mid-sized company stocks in developed and emerging markets with close to 3,900 holdings in nearly 50 countries.

The fund is domiciled in Ireland and traded on the London Stock Exchange (LSE) under the ticker VWRA with more than US$6.5B invested as of today.

The total expense ratio, or what Vanguard calls as Ongoing Costs of Fund, is just 0.22% annually.

Quick facts on VWRA

As of 31 August 2020, the fund has around 3474 holdings, weighted by market capitalization, a price/earnings ratio is 22.7, and a dividend yield of 2.2%.

Top holdings and weights

Being a globally diversified fund, it invests in companies all around the world with the top 10 holdings comprising 16% of the portfolio.

Exposure to industry and markets
Top 10 holdings in the fund

By buying and holding this single ETF, you are able to gain globally diversified equity exposure without taking on any country-specific, regional-specific, or industry-specific bets.

You’ll achieve maximum diversification possible, putting you on the efficient frontier of portfolio construction (with the highest return to risk ratio).

You’ll also never underperform the market since you’re owning the entire market!

Performance

The fund is new, so there aren’t any accurate historical data demonstrating the performance of the fund.

However, because it tracks an established index as the benchmark, we can use the index’s performance as a proxy to determine how the fund would have performed historically.

The statistics on Vanguard’s website show that the 10-year average annual return is 8.51% per year while the 3-year average annual return is 7%.

That’s pretty amazing returns, for a manageable level of volatility.

Comparing to the STI ETF

If I compare the US-domiciled version (VT) in blue, which has a longer operating history, you can clearly see that the owning equities that track a global index will give you much better returns over a long period of time.

VT (Vanguard Total World Stock Index Fund ETF) vs ES3 (SPDR Straits Times Index ETF)

Personal opinion on why it’s my favorite ETF

In some of my previous articles, I explained why holding ETFs are the perfect vehicle for long-term holdings and why most investors should avoid investing directly in stocks, and some factors include low-costs and diversification.

VWRA is the epitome of globally-diversified passive investing.

  • Low cost of 0.22% per year
  • Passive indexing strategy
  • Automated self-rebalancing
  • Great annualized returns of ~5-7% a year
  • Ireland-domiciled for reduced dividend withholding tax
  • Globally diversified with almost no risk of a total loss
  • Automatic compounding of dividends which are automatically reinvested

If costs matter to you, you’ll be pleased to find out that the cost of owning this fund is just 0.22% a year, or $22 per $10,000 invested, which is automatically reflected in the share prices.

This compares favorably to most conventional unit trusts (between 1.5% to 2% a year) and ETFs (between 0.3% to 0.7%).

Fees and costs for unit trusts and ETFs in Singapore. Credits: Syfe

If you use a roboadvisor, then you’ll need to pay an additional platform fee on top for managing that portfolio for you (between 0.6% to 0.8% a year).

If you have no time to stock-pick, just buy the entire stock market index which automatically weights them by market capitalization, meaning more of your money goes to bigger, more established, and higher-quality companies.

If you don’t know whether the US or China is a better country to invest in, why not invest in them both? Since you might not be able to consistently bet on the right horse each time for the next several decades, why not let the market help you balance between the two?

Being Ireland-domiciled also means that you don’t have to worry about expensive dividend withholding taxes of up to 30% on your dividends.

The accumulating version of this fund also automatically reinvests the dividends into buying more units of the fund, increasing the NAV of the fund.

When you don’t have to deal with small amounts of dividends, you save on valuable reinvestment and transaction costs.

A great deal for your money

When you put all these factors together, you’re getting a really good deal on your equity investment that’s cheap, globally-diversified, and passive.

It is an excellent choice for people who want to invest in the stock market for the long term but don’t have the time or knowledge to consistently do well with stock-picking.

While it is important to note that this ETF might not be suitable for everyone, for example, it might be difficult to access it because it’s denominated in USD and listed on an overseas exchange, I personally really like it and it makes up the majority of my DIY investment portfolio.

If you want to find out more, I suggest reading some of these articles first before investing in the fund. But thank you Vanguard, for making investing simple and effective.

Resources:

Disclaimer: Content is for informational purposes only, this is not investment advice.

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10 comments
    1. Wow you’re quick! I buy it through IBKR but you can buy it through most brokers like DBS Vickers or Stanchart. I don’t think it’s eligible under CPF/SRS though. I’d use Endowus global equity portfolio as a proxy to owning this.

  1. IWDA vs VWRA.
    The difference is the developing markets.
    Is there a need to capture this particular segment?
    Would it not create more volatility for lesser returns?

    1. The last few decades were good towards developed markets, but it’s difficult to predict the future. Developing markets have higher risks but also higher potential returns.

      If I compare developed markets like Europe and Japan, the potential for high growth rates are relatively limited.

      The weight of EM is relatively small in the global portfolio. Some people recommend the IWDA+EIMI combination, but I prefer keeping it simple 🙂

  2. Thanks for this article! I’ve been using VUSD (S&P500, Ireland domiciled) as the main component of my portfolio for years, but am slowly shifting to VWRA for more global and developing market exposure.

      1. Yes but was wondering when the automatic reinvestment of the dividends is happening. Although we can’t see the dividend amount, it should be reflected as an increase in shares held at some point right?

        1. It increases the NAV of the fund and makes your shares more valuable.

          When dividends are distributed, the NAV of the fund drops by the amount of distribution. In an accumulating ETF, the dividends are not paid out and instead reinvested internally within the ETF. It happens throughout the year since dividends are paid out by companies in the ETF occasionally throughout the year.

  3. Thanks, I read through this fund for a week compare with VT. Reinvest dividend is much better than tax 30% for Thai.

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