The pros and cons of investing in the Vanguard Australian Shares ETF (VAS)

Are ASX blue-chip shares a good place to be invested?

| More on:
The letters ETF sit in orange on top of a chart with a magnifying glass held over the top of it

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The Vanguard Australian Shares ETF is invested in 300 of the biggest businesses on the ASX
  • Some of the biggest holdings are BHP, CBA and CSL
  • It has a low management fee, but there could be better investment options to choose

The Vanguard Australian Shares Index ETF (ASX: VAS) is one of the most popular exchange-traded funds (ETFs) in Australia, for good reason. There's a lot to like. However, there are a few potential drawbacks to keep in mind as well.

As an index fund, its job is to track the S&P/ASX 300 Index (ASX: XKO), which is a group of 300 of the biggest businesses listed on the ASX.

The largest businesses in market capitalisation terms have the largest weightings in the portfolio, such as BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA) and CSL Limited (ASX: CSL).

Let's have a look at some of the positives and negatives, in my opinion, of the VAS ETF.

Positives

The Vanguard Australian Shares Index ETF comes with pretty good diversification – it's invested in 300 businesses. It has a stake in blue chips such as Woolworths Group Ltd (ASX: WOW) and Telstra Group Ltd (ASX: TLS) as well as the smallest ASX 300 shares like Australian Ethical Investment Ltd (ASX: AEF) and Temple & Webster Group Ltd (ASX: TPW), and everything in-between.

The VAS ETF has a low management fee, it's one of the cheapest ETFs in Australia. Vanguard currently offers this investment option for an annual management fee of 0.10%. The lower the management fee, the more the returns that stay in the investor's hands.

It offers a solid dividend yield – according to Vanguard, the ETF has a yield of 4.4%. Franking credits are a bonus on top of that yield.

The returns of the VAS ETF have been decent. Since its inception in May 2009, it has made an average return per annum of around 9%, with 4.6% of that being from distributions.

Negatives

The VAS ETF is invested in lots of businesses, but it is heavily weighted to financials and materials. According to Vanguard, the financials had a weighting of 27.2% at 30 April 2023, while the materials allocation was 24.2%.

This means that over half of the portfolio is invested in just two sectors, which are not typically the sectors that deliver strong compounding growth year after year. I think this is a key reason why the VAS ETF has underperformed a number of international index funds, which deliver more capital growth.

For example, the Vanguard MSCI Index International Shares ETF (ASX: VGS) has made an average return per annum of 11.8% since it started in November 2014.

I also think it's worth noting that the Vanguard Australian Shares Index ETF doesn't give much exposure to the global economy, whereas iShares S&P 500 ETF (ASX: IVV) is invested in just US businesses, but names like Apple and Microsoft generate earnings from almost every country in the world.

So, while the VAS ETF isn't a bad option, if I'm investing with an ultra-long-term mindset, there are other ETFs I'd rather put into my portfolio that could make stronger returns.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, Australian Ethical Investment, CSL, Microsoft, Temple & Webster Group, and Vanguard Msci Index International Shares ETF. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool Australia has recommended Apple, Australian Ethical Investment, Temple & Webster Group, Vanguard Msci Index International Shares ETF, and iShares S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ETFs

A young man punches the air in delight as he reacts to great news on his mobile phone.
ETFs

3 excellent ASX ETFs to buy before it's too late

Let's see what these top funds offer Aussie investors.

Read more »

Five happy friends on their phones.
ETFs

The best ASX tech ETFs to buy with $3,000

These funds allow investors to buy a slice of some of the best tech stocks in the world.

Read more »

Piggybank with an army helmet and a drone next to it, symbolising a rising DroneShield share price.
ETFs

Which thematic ASX ETF is up 29% for the year to date?

This ETF has bested the ASX 200 by more than 30% in 2025.

Read more »

Work meeting among a diverse group of colleagues.
ETFs

Why are fund managers currently so bullish on Indian equity markets?

India has been touted as an alternative manufacturing hub to China.

Read more »

A couple lying down and laughing, symbolising passive income.
ETFs

The best ASX ETFs for set-and-forget investing

This could be an easy way to invest in the Australian share market.

Read more »

A happy older couple relax in a hammock together as they think about enjoying life with a passive income stream.
ETFs

Here's why it's a great day to own Vanguard ASX ETFs

Show us the money!

Read more »

Middle age caucasian man smiling confident drinking coffee at home.
ETFs

Where to invest $10,000 into ASX ETFs in April

Here are a couple of funds that could be great destinations for your hard-earned money this month.

Read more »

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.
ETFs

US dollar hedging demand hits five year high. Should ASX ETF investors consider hedged ETFs?

Hedging can be beneficial, but it will also cost you.

Read more »