The Vanguard US Total Market Shares Index ETF (ASX: VTS) is an exchange-traded fund (ETF) that effectively gives Aussie investors access to the US stock market.
The ETF is offered by Vanguard, one of the largest asset managers in the world.
Vanguard keeps its management costs as low as possible for investors. This is because the owners of Vanguard are the investors themselves, and the profit is shared by lowering the costs.
There are a number of things to know about the VTS ETF, so I'm going to split it into positive and negative factors.
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Advantages of the VTS ETF
It'd be understandable for some Aussie investors to have exposure only to Australian companies listed on the ASX.
With this single investment, the Vanguard US Total Market Shares Index ETF provides exposure to more than 3,800 businesses listed in the United States. That's a lot of companies, and it spreads the risk. In market capitalisation terms, the VTS ETF gives us access to most of the US share market.
With all of this diversification, the VTS ETF management fee is exceptionally low at just 0.03% per annum. That means almost all of the investment returns stay in the hands of investors. There are no performance fees either, so it's a lot cheaper than what a fund manager may charge.
Many of the world's largest and strongest businesses are listed in the US. Through this ETF, we can gain exposure to big names like Apple, Microsoft, Alphabet, Amazon.com, NVIDIA, Tesla, Berkshire Hathaway, Meta Platforms, Eli Lilly and Exxon Mobil.
The returns of the Vanguard US Total Market Shares Index ETF have been very good, although past performance is not necessarily indicative of future performance. Over the past ten years, it has delivered an average return per annum of 15.8%.
The company holdings involved have impressive financials. According to Vanguard, the ETF's return on equity (ROE) is 22.3%, which is high for an entire ETF's portfolio. Compare that to the Vanguard Australian Shares Index ETF (ASX: VAS), which has a ROE of 12.2%.
Negatives of the Vanguard US Total Market Shares Index ETF
There's a lot to like about the fund, but there are a couple of things I'll point out.
First, the VTS ETF dividend yield is low at just 1.5%, according to Vanguard. Investors looking for good dividend income won't find it with this investment, though the capital gains have more than made up for it up until this point.
Some companies within the portfolio don't pay a dividend at all, such as Berkshire Hathaway. Others have a low yield because of their valuation or relatively low dividend payout ratio, such as Apple and Microsoft.
Another negative I'll note is that all of the businesses are listed in the US. The US share market is a large part of the global share market, but if this were an investor's only internationally-focused investment, then we'd be missing out on listed companies in other countries.
However, keep in mind that plenty of US businesses generate earnings from across the world – think how many different countries Apple iPhones are sold, or how many countries that McDonald's outlets are located. I think there's suitable underlying geographic diversification.
Foolish takeaway
The VTS ETF is a very effective investment for investors looking for good diversification and a strong allocation to technology businesses. I'd be happy to own it in my portfolio.
