What are you buying with the Vanguard Australian Shares Index ETF?

This ETF is very popular with investors. But why?

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One of the most popular exchange-traded funds (ETFs) on the Australian share market is the Vanguard Australian Shares Index ETF (ASX: VAS).

How popular? Well, at the last count, it had over $12 billion of assets under management.

Let's put that into context. That is greater than the market capitalisations of shares such as AGL Energy Limited (ASX: AGL), Qantas Airways Limited (ASX: QAN), and Medibank Private Ltd (ASX: MPL).

In fact, the VAS ETF is so large it would scrape into the illustrious ASX 50 index if it were a listed company.

But what actually is the Vanguard Australian Shares Index ETF? Let's dig deeper into it.

The Vanguard Australian Shares Index ETF

The VAS ETF is a low-cost (0.07% p.a. management fee), diversified, index-based exchange-traded fund that aims to track the ASX 300 index.

This index is home to 300 of the largest Australian companies measured by market capitalisation.

So, as well as giving you access to the large caps listed above, in addition to behemoths such as BHP Group Ltd (ASX: BHP) and Commonwealth Bank of Australia (ASX: CBA), the ETF also give you exposure to smaller listed companies.

The latter includes footwear retailer Accent Group (ASX: AX1), computer hardware and software distributor Dicker Data Ltd (ASX: DDR), and AV network developer Audinate Group Ltd (ASX: AD8).

This arguably makes it a more diverse portfolio of holdings compared to what you will find with the benchmark ASX 200 index.

The fund manager, Vanguard, believes the Vanguard Australian Shares Index ETF would be suitable for buy and hold investors that are seeking long-term capital growth, some tax-effective income, and a higher risk tolerance.

In respect to the buy and hold part, it is hard to argue against this. Over the last 10 years, the ETF has generated a total gross return of 8.61% per annum.

This would have turned a $10,000 investment in the VAS ETF into almost $23,000 today.

Motley Fool contributor James Mickleboro 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 Audinate Group and Dicker Data. The Motley Fool Australia has positions in and has recommended Audinate Group and Dicker Data. The Motley Fool Australia has recommended Accent Group. 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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