The Vanguard Australian Shares Index ETF (ASX: VAS) could be an appealing place to invest this year for a few different reasons.
It’s one of Australia’s most popular exchange-traded funds (ETFs) and it’s also one of the ones with the cheapest annual management fees, which is a great factor to like the investment. But, it’s not one of the main reasons to like it today. Instead, there are a few other factors to like the VAS ETF.
Global uncertainty
The US President Donald Trump is an unpredictable force and he has surprised the market a number of times over the last 12 months.
The VAS ETF owns a portfolio of ASX shares that are largely focused on Australia (and New Zealand). The growing tensions between the US and Europe over Greenland threaten to throw up volatility – who knows how this will play out?
The businesses in the ASX 300 could be spared from some of the potential pain, if it happens, particularly if global investors look for a safe haven.
There’s no guarantee what will happen either way, but Australian blue-chips could be ‘safer’ investments.
Good diversification
Having too many eggs in one basket could be a risk, so it’s good to have the VAS ETF portfolio spread across different sectors.
There are roughly 300 businesses in the portfolio, which is a good level of diversification.
The holdings are spread across a number of sectors including financials, resources, healthcare, industrials, consumer discretionary, real estate, communication services, energy, consumer staples, IT and utilities.
If there is volatility to come, then having diversification is a great tool to utilise.
Good dividend income
Many of business in the portfolio are known for paying a good level of dividends such as BHP Group Ltd (ASX: BHP), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), ANZ Group Holdings Ltd (ASX: ANZ), Wesfarmers Ltd (ASX: WES) and Telstra Group Ltd (ASX: TLS).
The yield of those sorts of businesses helps the VAS ETF provide a pleasing level of cash returns each year. The fact that capital growth could be a challenge this year means that passive income returns could be more important.
According to Vanguard, the fund has a dividend yield of 3.1%, with the franking credits being a useful bonus on top of that.
