Few funds can compete with Vanguard US Total Market Shares Index ETF (ASX: VTS) for the title of best ASX exchange-traded fund (ETF), in my opinion.
When choosing an ETF to invest in, I'm looking for low fees, diversification and good returns. This fund, which provides exposure to a large array of US shares, looks very appealing to me.
There are several diversified ETFs that I'd be extremely happy to own including VanEck Morningstar Wide Moat ETF (ASX: MOAT), Betashares Global Quality Leaders ETF (ASX: QLTY), VanEck MSCI International Quality ETF (ASX: QUAL) and BetaShares Global Sustainability Leaders ETF (ASX: ETHI). But the VTS ETF arguably ticks the most boxes.
Let's examine how Vanguard US Total Market Shares Index ETF rates on each of the factors I'm looking for.
Low fees
In terms of annual costs, this is the cheapest shares ETF that Aussies can buy on the ASX.
According to Vanguard, the yearly fee is a very minimal 0.03%.
In contrast, an active fund manager typically charges an annual fee of, say, 1% and then performance fees if they outperform their benchmark. The VTS ETF fund does not charge performance fees — it simply tracks the return of the US share market.
Diversification
The Vanguard US Total Market Shares Index ETF has a total of more than 3,700 holdings. There are few ASX ETFs that provide as much exposure to that many businesses in a single fund.
Having this many holdings reduces the risk of being invested too much in one particular business.
I also like the level of sector allocation diversification. The technology sector has typically been the best-performing industry over the past decade because of its high margins and fast revenue growth.
Around a third of the VTS ETF is invested in technology shares, with consumer discretionary (14%), industrials (13.1%), healthcare (11.8%) and financials (10.9%) being the other sectors with a weighting of over 10%.
Good returns
While past performance is not a guarantee of future performance, the VTS ETF has done very well thanks to its biggest holdings driving the US share market higher.
I'm talking about some of the largest stocks in the world: Microsoft, Apple, Nvidia, Alphabet, Amazon.com, Meta Platforms and Berkshire Hathaway. These are high-quality businesses with extremely powerful market positions and the ability to re-invest for a high return within the business. This quality helps the VTS ETF deliver returns for investors.
In the 10 years to 31 May 2024, the Vanguard US Total Market Shares Index ETF has delivered an average annual return of 15.9%.
I can't predict its level of return over the next 10 years, but its heavy weighting to strong technology stocks makes me believe the VTS ETF can continue outperforming the S&P/ASX 200 Index (ASX: XJO) over the long term.
