3 things about Vanguard Australian Shares Index ETF (VAS) every smart investor knows

These characteristics may help investors decide which ETF to buy.

| More on:
Three exuberant runners dash towards the camera. One raises her arms in triumph; another jumps in the air with arms raised. The third runner gives a satisfied smile.

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 a leading exchange-traded fund (ETF) that enables investors to buy many ASX shares in a single investment.

The VAS ETF tracks the S&P/ASX 300 Index (ASX: XKO), which includes 300 of the biggest businesses on the ASX. However, there's a lot more to this ETF than just what it invests in. I'm going to tell you about three attractive elements.

High dividend yield

Plenty of investors, particularly retirees, want to achieve a decent level of passive income.

The ASX 300 has a significant weighting to ASX mining shares and bank shares, which typically come with generous (high) dividend payout ratios and low price/earnings (P/E) ratios. This results in those companies having a high dividend yield, which is then passed to VAS ETF owners through the ETF structure.

According to Vanguard, the Vanguard Australian Shares Index ETF has a dividend yield of 3.7%, plus the franking credits are a bonus.

Compare that to the Vanguard US Total Market Shares Index ETF (ASX: VTS), which invests in the US share market. It has a dividend yield of 1.3% (and no franking credits).

The VAS ETF may be one of the more appealing options to create investment cash flow.

Very low fees

One of the main benefits of investing in index-following ETFs is they can have very low management fees. The VAS ETF is one of the cheapest ways to invest in a portfolio of ASX shares, with an annual fee of just 0.07%.

Why do fees matter? Because all things being equal, expensive fees can hurt an investment balance by thousands of dollars compared to a low-fee fund.

Using a compound interest calculator, if I invest $500 per month into a fund that charges 1% per annum and returns (net) 9% per annum, it would be worth $307,000 after 20 years.

If I did the same thing and invested $500 per month but chose a low-cost fund, and it returned (net) 10% per annum, it'd be worth $343,000.

Of course, that's a very simplistic comparison – we don't know precisely what the VAS ETF returns will be in the future.

Large exposure to a few ASX blue-chip stocks

Being invested in 300 businesses is typically a good thing for diversification.

However, with how large the biggest companies are in Australia compared to the rest of the index, the VAS ETF is heavily weighted to just a few names.

Looking at the biggest positions in the portfolio, we're talking about BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), CSL Ltd (ASX: CSL), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ), Wesfarmers Ltd (ASX: WES), Macquarie Group Ltd (ASX: MQG), Goodman Group (ASX: GMG) and Woodside Energy Group Ltd (ASX: WDS).

Those 10 names are responsible for more than 46% of the VAS ETF. That's less diversified, in allocation terms, than it may first appear. That may not be a bad thing if you like those companies, but it's something investors should keep in mind.

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 positions in and has recommended CSL, Goodman Group, Macquarie Group, and Wesfarmers. The Motley Fool Australia has positions in and has recommended Macquarie Group and Wesfarmers. The Motley Fool Australia has recommended CSL and Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ETFs

A group of young people lined up on a wall are happy looking at their laptops and devices as they invest in the latest trendy stock.

3 excellent ASX ETFs for beginner investors to buy

If you're just starting your investment journey it could be worth checking out these ETFs.

Read more »

ETF spelt out

Buy these 4 ASX ETFs for income, growth, or mining exposure

Whether it is growth, income, or mining, one of these ETFs may appeal to you.

Read more »

ETF written in gold with dollar signs on coin.

These were the 2 best ASX ETFs for price growth in April

These 2 ASX ETFs give investors exposure to one of the great megatrends of the moment.

Read more »

Exchange-traded fund spelt out with ETF in red and a person pointing their finger at it.

Macquarie ups the ante on fees with new ASX ETFs

These new ETFs from Macquarie are going to turn some heads.

Read more »

a man with a wide, eager smile on his face holds up three fingers.

3 reasons the Betashares Nasdaq 100 ETF (NDQ) is a great ASX ETF pick

Here’s what makes the NDQ ETF so compelling.

Read more »

ETF written on cubes sitting on piles of coins.

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.

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.

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 »