The Vanguard Australian Shares Index ETF (ASX: VAS) is the most popular exchange-traded fund (ETF) in terms of how much money is invested in it.
This fund tracks the S&P/ASX 300 Index (ASX: XKO), being 300 of the largest businesses on the ASX.
Most people already know that ASX ETFs can be useful for diversification, but there are other elements that I think investors need to be even more aware of. So, let's get into it.
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One of the cheapest ASX ETFs
Investors can't control what the return of the index will be, but they can choose what management fee they want to sign up for.
The higher the fees, the smaller the net return is for investors, so identifying funds with lower fees helps keep more wealth in the hands of investors.
The VAS ETF isn't the cheapest fund that focuses on ASX shares. But its costs are virtually the same as those of the BetaShares Australia 200 ETF (ASX: A200). The VAS ETF has an annual management fee of just 0.07%.
Having the lowest costs isn't the only thing to focus on, but for an index-tracking ETF, I think it measures up well against competitors.
Big dividend yield
This fund isn't known for delivering a high level of capital growth in most years. However, it is likely to deliver investors a pleasing level of passive income because of the generous dividend payout ratios from the major dividend payers in the index.
I'm talking about businesses like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), Wesfarmers Ltd (ASX: WES), ANZ Group Holdings Ltd (ASX: ANZ), Macquarie Group Ltd (ASX: MQG), and Telstra Group Ltd (ASX: TLS).
According to Vanguard, at the end of April 2025, it had a (partially franked) dividend yield of 3.4%. To me, that's a lot better than what international share-focused ETFs typically offer.
Relatively low return on equity
In my opinion, businesses with a low return on equity (ROE) are usually less appealing to own than those with a high ROE.
A low ROE means they're not generating as much profit for the amount of shareholder money retained within the business. The higher the ROE, the higher the quality of the business.
The ROE also suggests the business may make that level of return on reinvested money; therefore, the higher the ROE, the better for future shareholder returns.
According to Vanguard, the VAS ETF had an ROE of 12.4%. Compare that to another Vanguard offering – the Vanguard MSCI International Shares Index ETF (ASX: VGS), which has an ROE of 19.2%.
While the ROE doesn't automatically translate into how much the share price will rise, it doesn't surprise me that the VGS ETF has delivered an average annual return that's 4% higher than the VAS ETF.
ASX shares are great and definitely worth a spot in our portfolios, but I think it's also important to acknowledge that there are many great businesses outside of the ASX that are worth having exposure to in one way or another.
