The Vanguard Australian Shares Index ETF (ASX: VAS) is the most popular ASX-listed exchange-traded fund (ETF) on the ASX. It's close to $17 billion in size, but I'd guess that the legendary Warren Buffett isn't among its investors.
Being able to invest in the ASX share market for a very low fee is attractive. The VAS ETF has an annual management fee of just 0.07% per annum. It's one of the cheapest ASX funds that Aussies can buy and gives access to all of the ASX blue-chip shares that investors may know, including BHP Group Ltd (ASX: BHP) and Commonwealth Bank of Australia (ASX: CBA).
Of course, Warren Buffett isn't Australian. Through his Berkshire Hathaway investment company, he's one of America's greatest investors. Some of his most famous calls have been to "buy American."
But what if he were Australian? Would Warren Buffett want to invest in the VAS ETF?
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Warren Buffett likes index funds
The US share market is different from the ASX share market here in Australia. But I think some of Buffet's past comments on funds apply to both the US-based S&P 500 Index (SP: .INX) and the ASX index that the VAS ETF tracks — the S&P/ASX 300 Index (ASX: XKO).
Warren Buffett reportedly said:
In my view, for most people, the best thing to do is own the S&P 500 index fund. The trick is not to pick the right company. The trick is to essentially buy all the big companies through the S&P 500 and to do it consistently and to do it in a very, very low-cost way.
Costs really matter in investments. If returns are going to be seven or eight percent and you're paying one percent for fees, that makes an enormous difference in how much money you're going to have in retirement.
The record shows that the unmanaged index fund is going to do quite well over time and active investment as a group can't beat it.
The temptation when you see bad headlines in newspapers is to say, well, maybe I should skip a year or something. Just keep buying.
American business is going to do fine over time, so you know the investment universe is going to do very well.
I think it's fair to say that Buffett is an advocate for ETFs and index funds in general.
Of the money that Buffett will leave to his wife in his will, approximately 90% will be invested in a very low-cost S&P 500 index fund, and the other 10% will be invested in short-term government bonds.
If Buffett were an Australian, I think he'd advocate for more Aussies to invest in ASX-listed ETFs like the Vanguard Australian Shares Index ETF.
Stock-picking pedigree
However, if he were Australian, I believe he would also continue to pick individual businesses for his portfolio. Most of Berkshire Hathaway's investments are either cash/bonds or individual companies that Berkshire Hathaway has invested in privately or owns a piece of via a stock exchange in countries like the US and Japan.
Buffett has achieved an average annual return of approximately 20% over the decades with Berkshire Hathaway, and I'm sure he would (try to) do the same if he were Australian.
His portfolio may have been different if he had invested here, but I think he would have successfully identified a number of ASX growth shares with long-term potential and done very well with them.
