Could Vanguard Australian Shares Index ETF (ASX: VAS) be a really good investment for beginners to consider?
What’s an exchange traded fund (ETF)?
If you don’t know what an ETF is then it could be a smart idea to look at Rask’s free beginner ETF investor course.
An ETF basically lets you invest in a whole bunch of different businesses with a single investment. Very handy if you want to get good diversification, but you don’t want to buy 50, or 100 or 1,000 businesses yourself. In-fact, I’d say buying 1,000 different companies yourself would be a very poor choice for all the brokerage costs alone.
What’s Vanguard Australian Shares Index ETF?
This particular ETF is one of the most popular for Aussie investors. It’s over $7 billion in size, making it one of the biggest ETFs on the ASX.
The idea is that it allows investors to track the S&P/ASX 300 Index, which essentially represents the bulk of the ASX. When people talk about what the ASX has done that day, the ASX 300 is a good barometer for the overall picture.
Just like the Australian economy as a whole, a big part – almost half – of the ETF is made up of financial and materials businesses, with healthcare and real estate businesses being two of the next largest industries in the ETF’s holdings.
What are the actual holdings?
At the end of December, the biggest 10 exposures were: Commonwealth Bank of Australia (ASX: CBA), CSL Limited (ASX: CSL), BHP Group Ltd (ASX: BHP), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ), Wesfarmers Ltd (ASX: WES), Woolworths Group Ltd (ASX: WOW), Macquarie Group Ltd (ASX: MQG) and Rio Tinto Limited (ASX: RIO).
Have the returns been good?
Over the past 10 years the average return per year from the ETF has been 7.6%. That’s after including the management fees, which is currently 0.10% annually. Over half of the return has been from the income/distributions.
Is an average of 7.6% per year good? It’s..okay. The problem with the ASX is that it’s dominated by large businesses which generate low returns and have poor growth prospects for the future. CSL is the only one in the top six holdings I’d be willing to own today.
Plenty of other ETFs on the ASX have been much better. For example, Betashares Nasdaq 100 ETF (ASX: NDQ), which focuses on US tech shares, has been a much better long term bet – that ETF is one I’d rather invest in today for the long term. Betashares Global Quality Leaders ETF (ASX: QLTY) is another ETF that I like the look of.
But you could also just go for quality, diversified ASX dividend shares that might be able to provide better long term returns than the ETF.
