2 quality Vanguard ETFs I'd buy for diversification

Here are 2 quality Vanguard ETFs I'd invest in for diversification including Vanguard Australian Property Securities Index ETF (ASX:VAP).

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Vanguard is known for being one of the best exchange-traded fund (ETF) providers in the world.

Vanguard offers investment options with very low management fees so that most of the returns stay in the investor's investment account rather than going into the pockets of a fund manager.

Here are two Vanguard ideas:

Vanguard Australian Property Securities Index ETF (ASX: VAP

This ETF is invested in 31 real estate investment trusts (REITs) within the ASX 300. The vast majority of the REITs are either retail, industrial, office or a mix, though there are also a few specialised ones in there. Its largest three holdings are Goodman Group (ASX: GMG), Scentre Group (ASX: SCG) and DEXUS Property Group (ASX: DXS).

Property has been a strong performer over the past few years as Australia's interest rate dropped. Compared to cash and residential property, ASX REITs still offer an attractive yield.

The ETF as a whole has a distribution yield of 4.5%, but it's trading with a price to book ratio of 1.2x. In other words, the REITs are priced 20% higher than their underlying valuations.

Vanguard MSCI Index International Shares ETF (ASX: VGS

This ETF gives investors exposure to the global share market. Remember that the ASX only makes up 2% of the global share market capitalisation.

It's invested in almost 1,600 international businesses across a variety of countries. For example, it's invested in the large cap tech shares like Microsoft, Amazon, Apple, Alphabet (Google) and Facebook as well as ones like Visa and MasterCard. But it's also invested in large businesses outside of the US such as Toyota, LVMH, HSBC, Unilever, Diageo, SAP and so on.

However, whilst international shares are known for generating more earnings growth than Australian businesses, they have lower dividend yields to re-invest for that growth.

The ETF currently has a dividend yield of 2.3%, though over the past five years it has generated total net returns of 12.3% per annum.

Foolish takeaway

Both of these ETFs are good ideas for diversification purposes, though at the current prices I'm not jumping to buy large amounts of them. Indeed, I may actually prefer the idea of iShares Global 100 ETF (ASX: IOO) which owns many of the shares I named and only owns 100 names, and misses out the smaller, less powerful businesses – it outperformed the Vanguard International ETF by about 1.5% per annum over the past five years.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Scentre Group and Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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