The Vanguard Australian Shares Index ETF (ASX: VAS) is an exchange-traded fund (ETF) that enables investors to get exposure to the S&P/ASX 300 Index (ASX: XJO). While there are a few good reasons to like it, it's not one I own in my portfolio.
I do have exposure to the ETF world in my own portfolio and I like the concept of ETFs. But, I can't see myself investing in the VAS ETF.
In this article, I'll outline why I'm personally not buying the Vanguard Australian Shares Index ETF, but also three potential reasons why investors should buy it.
Why I'm not invested in the Vanguard Australian Shares Index ETF
Most of my portfolio is aimed at investments/businesses that I think can deliver capital growth over time, but also be an attractive source of dividend income.
I spend a lot of time looking at the ASX share market (perhaps too much!). I can't imagine a lot of people want to look at shares all the time, there are probably better things to do.
By looking at a wide variety of ASX shares, listed investment companies (LICs), small caps, large caps and so on, I feel like I have been able to assess all the options and choose what I think are the right choices for my portfolio at the right prices.
The overall performance of the VAS ETF isn't bad, but the returns haven't been too strong either – over the past five years it has made an average return per annum of 6.6%, with 4.6% of that being distributions paid to investors. I'm many years away from retirement, so I'm not looking for such a high proportion of the return to be income.
Over the past five years, the VAS ETF has only achieved capital growth of an average of 2% per annum. The companies I'm looking to invest in, at the right value, can offer a combination of share price growth and attractive businesses.
I've invested in ASX shares like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Brickworks Limited (ASX: BKW) and Fortescue Metals Group Ltd (ASX: FMG) at materially lower prices than they're trading today.
3 reasons why investors should like the VAS ETF
Although I'm not buying this ETF, I still believe that the Vanguard Australian Shares Index ETF can be a very effective investment for most people. I think a lot of people would benefit by having money in the market for the long term, and that includes ASX blue chips.
Trying to create a portfolio yourself can be very haphazard. It's a bit like a garden, unless you put in a bit of thought and effort, weeds can end up overtaking it.
But, an index-based ETF like the VAS ETF can automatically update its portfolio over time as the ASX 300 changes – Vanguard automatically does the gardening for us, at a very cheap cost. It has an annual management fee of just 0.07%, which is one of the lowest in Australia.
While I'd prefer the ASX 300 to have a bigger allocation to sectors like technology and industrial businesses, it does offer a good amount of diversification rather than investors just buying a handful of random blue-chip stocks for their portfolio.
At the end of September 2023, these were the biggest 10 holdings:
- BHP Group Ltd (ASX: BHP)
- Commonwealth Bank of Australia (ASX: CBA)
- CSL Limited (ASX: CSL)
- National Australia Bank Ltd (ASX: NAB)
- ANZ Group Holdings Ltd (ASX: ANZ)
- Westpac Banking Corp (ASX: WBC)
- Woodside Energy Group Ltd (ASX: WDS)
- Macquarie Group Ltd (ASX: MQG)
- Wesfarmers Ltd (ASX: WES)
- Woolworths Group Ltd (ASX: WOW)
Finally, for people wanting passive income, it offers a solid yield. According to Vanguard, it currently has a dividend yield of 4.2%, and then there are the bonus franking credits.
