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Is it time to buy the Vanguard Australian Share ETF?

Vanguard Australian Share ETF (ASX: VAS) is a popular investment option among Aussies, is it time to invest?

It’s been a good six months for the ETF and the ASX as a whole, the ETF has risen by 21% which doesn’t include the distributions that it has paid.

One of the best things about choosing to invest through the exchange-traded fund (ETF) structure is that the costs can be very low if you go with the right provider. The Vanguard Australian Share ETF’s annual management fee will be reducing from 0.14% to 0.10% from 1 July 2019.

The ETF provides a high level of exposure to all of the big blue chips of the ASX including Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Westpac Banking Corp (ASX: WBC), CSL Limited (ASX: CSL), Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd (ASX: NAB), Telstra Corporation Ltd (ASX: TLS), Wesfarmers Ltd (ASX: WES), Woolworths Group Ltd (ASX: WOW) and Macquarie Group Ltd (ASX: MQG).

Some might argue it gives too much exposure to the big businesses and too much towards two sectors. Around 31.5% of the ETF is allocated to ‘Financials’ and ‘Materials’ has an 18.5% allocation of the ETF.

Over the past decade the ETF has delivered an average annual return of 9.76% per year with an almost even split between income distributions and capital growth. This doesn’t include the franking credits. 

The ASX is known for its higher dividend yields with businesses wanting to distribute most of the franking credits it generates to shareholders each year. Australian businesses have materially higher dividend payout ratios compared to their international counterparts. This leads to higher short-term dividend yields but slower growth over the long-term.

Foolish takeaway

With the ASX trading at close to its decade high price, I’m not sure today is the best time to buy Vanguard Australia ETF shares, even if the mostly-franked 4.2% dividend yield looks quite attractive compared to the current interest rate.

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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited, Telstra Limited, and Wesfarmers Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. 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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