The Vanguard Australian Shares Index ETF (ASX: VAS) is a very popular exchange-traded fund (ETF) on the ASX, with $15 billion in funds under management (FUM). But being large is one thing, how it has performed is a completely different matter.
Vanguard aims to provide investors with access to share markets at a very low cost. The investors are the owners of Vanguard itself, and the provider shares its profit with investors by keeping the fees as low as possible.
ETFs can be an effective way to invest and help diversify against risks. On Vanguard's website, it says:
Rather than trying to pick the winning investment each year, spreading your investments across a wide variety of assets will help reduce the risk of loss. Investors who are well diversified tend to enjoy a smoother investment ride over the long term.
Let's look at how good the VAS ETF returns have been.
Adequate long-term returns
Every month, Vanguard informs investors how the Vanguard Australian Shares Index ETF has performed over time.
As of 31 May 2024, the VAS ETF has delivered an average net return of:
- 8.98% per annum since its inception in May 2009
- 7.72% per annum over the prior decade
- 7.81% per annum over the last five years
- 6.54% per annum over the last three years
These are not bad returns, but not Earth-shattering either.
It's interesting to note that in each time period I mentioned, the distribution element of the return from the ASX ETF made up most of the net return, highlighting that dividends are an important part of ASX returns.
In the last 12 months, the VAS ETF has delivered a net return of 12.81% thanks to the rise in the S&P/ASX 300 Index (ASX: XKO).
What is the VAS ETF invested in?
The performance of the underlying holdings decides the returns of an ETF.
Unsurprisingly, ASX financial shares (29.7%) and ASX mining shares (22.7%) still make up more than half of the ASX ETF's total portfolio.
The top ten positions in the portfolio are some of Australia's strongest businesses:
- 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)
- Woodside Energy Group Ltd (ASX: WDS)
Consider other ASX ETFs for additional diversification
The ASX only makes up a very small percentage of the global share market, so it could be wise to diversify with other ETFs that provide exposure to international stocks.
For example, the Vanguard MSCI International Shares Index ETF (ASX: VGS) invests in more than 1,300 businesses in 'developed' countries worldwide. Since its inception in November 2014, the VGS ETF has delivered an average annual return of 12.8% thanks to its exposure to numerous growing businesses. This sort of investment could work well if mixed with the VAS ETF.
