If you’re looking for a solid, low-cost way to invest in the Australian stock market, the Vanguard Australian Index ETF (ASX: VAS) is a great option. In this blog post, we’ll take a look at what VAS offers investors and how it stacks up against the competition.
About Vanguard
Beginning in 1975 Vanguard became the first company to offer investors a low-cost market index fund. Vanguard is one of the largest investment companies in the world, with over US$ 7 trillion in assets under management.
The Vanguard Australian Shares Index ETF
The Vanguard Australian Shares Index (VAS) ETF tracks the S&P/ASX 300 Index, which is made up of the 300 largest companies listed on the Australian stock exchange. This fund includes some big company names such as Telstra, BHP Billiton and Westpac.
VAS Management Fees
VAS charges a management fee of 0.10%, which is lower than most of its competitors. This means that for every $10,000 invested you pay $10 in fees. It is important to know that you don’t get invoiced for the fees every year, the management fee is taken directly out of the fund so it is actually built into the price of the stock. This is handy as you don’t have to think about when your fees are due, you really can just set and forget!
Performance
Since its inception date in 2009, VAS has delivered an average return of approximately 9% per annum, which as expected has performed exactly the same as the index. This is due to the ETF tracking the index closely, which means that you are essentially investing in the same companies as everyone else who has invested in VAS.
Using Sharesights nifty share checker function we can easily see the past performance of VAS compounding since 2009.
Asset Allocation
The VAS ETF is weighted towards the financial, Materials and healthcare sectors, with these three making up almost 60% of the fund. The fund is relatively well diversified and covers a range of industries including utilities, consumer discretionary, materials and telecommunications services.
How VAS Stacks Up Against the Competition
One of the most common competitors to Vanguards Australian Shares Index ETF is Betashares A200 offering. Straight away we can rule out huge differences in the returns. Due to the index tracking nature of these ETF’s their returns are basically exactly the same. VAS tracks a slightly different index than A200, that being the ASX300 index instead of the ASX200.
One place where they do differ is in their Management Fees (MER). While VAS has a management fee of 0.15% per annum ($15 per $10,000 invested), A200 has a Management fee of just 0.07% Per Annum ($7 per $10,000 invested). While it doesn’t sound like a huge difference, just remember as your nest egg grows and doubles, and triples in size over the years these Management fees will start to add up. It might even mean one more beer at the pub in retirement!
Does VAS pay a Dividend / Distribution?
Yep! VAS distributions are paid every three months. Dividends on the ETF are determined by the dividends received from the underlying shares in which it tracks. As long as the underlying shares are paying a dividend then VAS holders can expect to recieve a Distribution. A distribution can come from income (dividend yield) or capital gains realised through index rebalancing and turnover. Since its inception, VAS has returned on average 4.5% in dividend yield, which is definitely nothing to scoff at.
Are VAS dividends reinvested?
VAS Dividends can be automatically reinvested into more shares in the ETF. This is a great way to compound your returns over time and really speed up the process of growing your investment. Alternatively, you can have the dividends paid out to you in cash. I personally have always been a big advocate of reinvesting dividends, especially while I am currently growing my wealth and do not need to have the dividends paid to me to live off.
Does VAS attract Franking Credits?
First of all for those you who are not quite familiar with franking credits , they are basically a tax credit that Australian taxpayers receive on their dividends. This is because the company has already paid income tax on its profits, and the franking credit ensures that this dividend income is not taxed twice. For VAS investors, you can expect to receive a franked dividend.
How do I invest in Vanguard VAS?
You can invest in VAS through most of the major Australian brokers including CommSec, SelfWealth and Pearler. Unlike managed funds with ETFs there is no minimum investment apart from the ASX minimum parcel ($500).
Conclusion
As you can see, VAS is a great option for investors looking for a low-cost way to invest in the Australian stock market. With a management fee of only 0.10%, it offers one of the lowest rates on the market. And with an average return of 9% over the last decade, it is hard to beat! So if you are looking for a way to invest in Australian companies, VAS should definitely be on your radar.