Vanguard Australian Shares Index ETF (ASX: VAS) is one of the most popular ways to invest into ASX shares. But is it one of the best ways?
What is the VAS ETF?
An exchange-traded fund (ETF) is a pretty awesome way to invest in shares. It enables investors to buy a whole group of shares in a single investment. It’s like being able to buy a whole basket of groceries rather than having to pick out the items individually yourself.
ETFs can be focused on different investment areas such as the global share market, the Australian share market, the US share market, the video gaming sector, the cybersecurity sector and so on.
The Vanguard Australian Shares Index ETF, or VAS ETF, is about giving investors exposure to the ASX 300. That’s an index of 300 of the biggest businesses on the ASX.
Positives of the VAS ETF
It’s certainly one of the cheapest ways to access ASX shares. Lower management costs means that more of the investment returns are left in the hands of the investors, which is obviously good for long-term wealth growth. The VAS annual fee is just 0.10%.
The number of businesses (300) that it gives exposure to is attractive diversification. If there’s a problem with any individual business, it means that the impact will be less.
Also, the companies that make up the biggest allocations of this investment are predominately high dividend yield payers. That means investors who like income will receive an attractive amount of investment income from the portfolio.
Why it may not be the best
One of the main problems with the VAS ETF is that its biggest holdings are concentrated in the financial and resources space.
Companies like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Macquarie Group Ltd (ASX: MQG), BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) don’t have much growth potential because of their size and industry.
I think that VAS ETF is a decent option, don’t get me wrong. The passive investing means most people will do fine and track the performance of the broader share market.
But ASX blue chips are at a disadvantage for the long-term. The smaller ASX shares have more growth potential in my opinion. That’s why I like investment options like WAM Microcap Limited (ASX: WMI) and Ophir High Conviction Fund (ASX: OPH) which could produce stronger total returns over the coming years.
WAM Leaders Ltd (ASX: WLE) is another investment that invests in ASX blue chips, but it has shown it can deliver outperformance by being a bit more active with its positions.
Summary thoughts on the VAS ETF
The ETF isn’t a bad option. But I think over the next five to ten years, there are other diversified investments that look at ASX shares that could be better.