Is the Vanguard US Total Market Shares Index ETF (ASX:VTS) a good long-term investment? I’m going to explain why it is.
Exchange-traded funds (ETFs) are a great way for people to invest in the share market. Most ETFs give the investor an easy way to invest in a large number of shares with a single investment. Some ETFs may invest in 100 to 300 shares and others are invested in thousands.
Many ETFs also come with low operating costs, much lower than active fund managers. The lower the cost the higher the net returns – which is obviously the most important thing for investors.
Vanguard US Total Market Shares Index ETF
This ETF is invested in most of the US share market. At the end of June 2020 it had 3,531 positions. That’s extremely diversified in my opinion. Diversification reduces the risk of any particular business or industry hurting the overall portfolio’s return too much.
Looking at the particular industry allocations with more than a 5% weighting: 25.2% of the ETF is invested in technology, 16.6% is invested in financials, 14.6% is invested in health care, 14% is allocated to consumer services, 12% is invested in industrials and 7.9% is invested in consumer goods.
I like the spread of the businesses across different industries in the US Total Market Shares Index ETF. There is a fair bit allocated to technology, but this is the sector that’s seeing the most growth. If I could pick which industry to have the most exposure to, it would be technology.
This ETF holds all of the US’ best businesses in its holdings. Its top ten holdings are among the best and most well-known businesses in the world.
At 30 June 2020 its leading holdings were: Microsoft, Apple, Amazon.com, Alphabet, Facebook, Johnson & Johnson, Berkshire Hathaway, Visa, Proctor & Gamble and UnitedHealth.
Its holdings further down the list are names like Home Depot, Mastercard, JPMorgan Chase, Intel, Verizon, Nvidia, AT&T, Adobe, PayPal, Walt Disney, Netflix, Merck & Co, Exxon Mobil, Bank of America, PepsiCo, Pfizer, Comcast and Cisco.
Many of the above businesses have strong profit margins and long-term growth potential.
Plenty of the stocks within US Total Market Shares Index ETF are global giants within their sectors. Global earnings provides much more growth potential and also means it can be more resilient as well – it’s unlikely they every region would be suffering at the same time. Apart from something like this COVID-19 pandemic.
Look at the big technology companies. They are involved in changing how the world runs with their cloud computing offerings. Virtual reality and AI is going to be dominated by the these businesses. Automated cars could become a huge division for Alphabet’s Waymo.
As I’ve mentioned, the lower the fees the better.
Vanguard US Total Market Shares Index ETF has annual management fees of just 0.03% per annum. That’s one of the lowest available for ASX investors. It’s so low that you’d hardly see any difference between the gross return and the net return.
The net returns of an investment are the most important thing. Over the past year the ETF has delivered a net return of 16.2%. Over the past decade it has delivered an average return per annum of 15.3%.
Past performance is not a guarantee of future performance. However, I think it shows the types of returns that this ETF’s holdings can generate over the long-term. However, most of the return will be in the form of capital growth because it has a fairly low dividend yield.
I think Vanguard US Total Market Shares Index ETF is one of the best options to invest into US shares. It has extremely low operating costs, very good diversification and its largest weightings is to high-growth technology shares.
It’s a pretty good time to buy shares because the Australian dollar has strengthened. However, I think that the upcoming US election could create more volatility for the US share market – that could be a good time to invest.
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