Is the Vanguard Australian Share ETF (ASX: VAS) the best long-term investment on the ASX?
I wouldn't be surprised if many regular investors thought that was the case. Except for the last few years, Australian shares have been one of the best places to be invested in the world over the decades, particularly when you add in those useful franking credits.
There are plenty of stories around the world of management deciding to build an empire and burning through capital rather than paying some of it out to shareholders. That's why plenty of Australian investors think it's better for companies to pay out a larger percentage of their profits as a dividend each year, which also unlocks the franking credits.
With so much change, disruption and uncertainty in the economy and the market in recent times, people may feel safer by simply being invested in a broad group of businesses through an exchange-traded fund (ETF).
Vanguard is perhaps the best ETF provider in the world. It's able to provide such low-costing ETFs because its investors are also the owners of the business, so Vanguard passes on profit growth in the form of even lower management fees. A very pleasing loop.
The Vanguard Australian Share ETF now has an annual management fee of only 0.10% per annum. This leaves more of the net returns to investors and is enormously important over the long-term.
Being invested in an Australian shares ETF obviously means your biggest exposure is to the big banks of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd (ASX: NAB) and Macquarie Group Ltd (ASX: MQG), the big miners of BHP Group Ltd (ASX: BHP) & Rio Tinto Limited (ASX: RIO) and healthcare giant CSL Limited (ASX: CSL), as well as a few other shares.
An obvious positive from the above positions is most of them have large dividend yields, leading to the ETF's overall mostly-franked dividend yield of 3.9%. Not many ETFs offer such a good dividend yield.
However, except for CSL, I'd also say most of those businesses are limited to a slow growth rate going forwards because of how mature they are – it's unlikely their market share is going to change positively much either.
Foolish takeaway
If you're looking for income then this ETF could be decent diversified option, particularly if Australian house prices have stopped falling, but for longer-term returns I think there are better opportunities out there for income and capital growth.
