Is the Vanguard Australian Shares Index ETF (VAS) a good long-term investment?

Should Aussies be interested in the VAS ETF.

| More on:
A young woman sits with her hand to her chin staring off to the side thinking about her investments.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Vanguard Australian Shares Index ETF (ASX: VAS) is the most popular exchange-traded fund (ETF) on the ASX. At the end of February 2024, it was $14.7 billion in size.

The VAS ETF tracks the returns of the S&P/ASX 300 Index (ASX: XKO), which comprises 300 of the biggest ASX shares by market capitalisation.

Being popular doesn't necessarily mean it's the best investment, so I'm going to look at four key areas that could influence whether the VAS ETF is effective to own.

Fees

One of the best reasons to own almost any Vanguard ETF is that the fund manager offers its ETFs as cheaply as possible through low management fees. Lower fees mean more of the fund value stays in the hands of investors rather than lining the pockets of a fund manager.

The VAS ETF has an annual management fee of 0.07%, making it one of the cheapest ways to invest in ASX shares through a diversified portfolio.

On this measure, it gets a tick from me.

Dividend yield

Many ASX blue-chip shares have relatively high dividend yields thanks to the combination of a fairly high dividend payout ratio and trading at a relatively low earnings multiple. In other words, they pay out a lot of profit as a dividend and have a low price/earnings (P/E) ratio.

According to Vanguard, the VAS ETF has a dividend yield of 3.9%. Franking credits boost the cash yield.

For investors wanting passive income, I think the Vanguard Australian Shares Index ETF is a decent option for dividend yield.

Diversification

The VAS ETF invests in 300 different businesses, which is a lot of diversification in a single investment. It can lower the risk compared to owning just one company, whether it's Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Woolworths Group Ltd (ASX: WOW) or Telstra Group Ltd (ASX: TLS).

However, when we look at the sector allocation, the VAS ETF gives two industries more than 50% weighting, so I wouldn't say it's as diversified as it could be. At the end of February 2024, ASX financial shares had a weighting of 29.7%, while mining shares had a weighting of 22.4%. The big businesses in these sectors make up most of the allocations to those two sectors.

It's a positive for investors who want a large weighting in these sectors. However, some people may want a bigger allocation to sectors with more growth potential, such as technology or ASX retail shares. So, I'd give the VAS ETF half a tick for diversification.

Returns

The Vanguard Australian Shares Index ETF's return is simply the combined return of all of the different businesses it holds in its portfolio.

Since its inception in May 2009, the ETF has returned an average of 9.05% per annum. Of that return, 4.58% per annum was in the form of distributions, while 4.47% per annum was capital growth.

Those returns aren't terrible at all, but there are other ETFs that have performed better over the long term.

Foolish takeaway

I think VAS ETF is an effective way to get cheap exposure to ASX blue-chip shares.

However, from my perspective, it doesn't have as many capital growth prospects as some other globally-focused ETFs. So, I'd want to balance the Vanguard Australian Shares Index ETF with other options like Vanguard MSCI Index International Shares ETF (ASX: VGS).

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool Australia has recommended Vanguard Msci Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ETFs

ETF written on cubes sitting on piles of coins.
ETFs

3 excellent ASX ETFs I think are a buy right now

I think these ASX ETFs all have excellent growth potential.

Read more »

The letters ETF with a man pointing at it.
ETFs

Why these ASX ETFs could be fantastic buy and hold options

These ETFs could be quality long-term options for investors. But why?

Read more »

Businessman at the beach building a wall around his sandcastle, signifying protecting his business.
ETFs

Both of these excellent ASX ETFs are on my buy list

I love the look of these ASX ETFs, I’m expecting to buy at least one.

Read more »

a business person checks his mobile phone outside a Wall Street office with an American flag and other business people in the background.
ETFs

Here's what makes the Vanguard US Total Market ETF (VTS) stand out from other index funds

This ETF offers something that no other ASX index fund does.

Read more »

ETF written in yellow gold.
Gold

Should you buy ASX gold ETFs right now?

Is gold a 2024 fad or still a good long-term investment?

Read more »

Cubes placed on a Notebook with the letters "ETF" which stands for "Exchange traded funds".
ETFs

How much money should I put in one ASX ETF?

Does your ASX ETF provide good returns and the required diversification?

Read more »

ETF spelt out with a rising green arrow.
ETFs

5 excellent ASX ETFs to buy next week

These ETFs offer investors access to all corners of the market.

Read more »

Accountant woman counting an Australian money and using calculator for calculating dividend yield.
ETFs

If I'd put $5,000 in iShares S&P 500 ETF (IVV) at the start of 2024, here's what I'd have now

It has been an incredible start to the year for the US share market.

Read more »