If you know anything about smart investing, then you’ve probably read about index funds, Exchange Traded Funds, and you’ve most certainly heard of Vanguard. This article is for people wanting to learn more about Vanguard ETFs, what options are available and how you can invest into Vanguards ETFs in Australia
What this article is about
Vanguard offers a number of ETFs across the world, including Australian based funds such as their Australian stock market fund (ASX:VAS) which tracks the ASX S&P 300 index (top 300 stocks by market capital), as well as cross listed or US domiciled funds such as their American total US stock market fund (ASX:VTS) which tracks the CRSP US total market index (approx 3500 stocks).
In this article we will explain a little more about Vanguard itself, what ETFs they offer across a range of asset classes, which ETFs I personally buy and finally I will provide you with how I buy Vanguard ETFs in Australia using SelfWealth.
Just a word of caution; take the 1, 3 and 5 year return figures with a grain of salt. We all know we have just experienced a market crash recently and this obviously factors into the returns, Vanguard haven’t given me an easily accessible 10 year (or longer) return figure without going into each fund in detail, so if you want this then just head over to their site – we all know you should be investing for a 20-30 year+ timeframe!
A background on the Vanguard group
Vanguard is arguably one of best known providers of Exchange Traded Funds in the world. Founded by legendary investor, John (jack) Bogle in 1975, Vanguard offered the world’s first index tracking mutual fund, and now is one of the largest providers of index fund and exchange traded funds in the world.
Globally, Vanguard now have over (USD) $6.2 Trillion in assets under management (as of January 31, 2020). This is spread across 190 US based funds, and 230 additional globally based funds, with over 30 million individual investors from 170 different countries.
Vanguards average Management expense ratio is 10 basis points, or .1% (a tenth of one percent). This makes them incredibly competitive, especially against dodgy actively managed mutual funds which charge in the order of 2-3% (that is up to 30 times more!)
What ETFs do Vanguard offer in Australia
Vanguard offer a number of ETFs in Australia. There are split into a number of asset classes and markets, and also further sub-divided into different ETFs within certain asset classes and markets.
Vanguards Fixed Interest and Bond ETFs in Australia
Fixed interest and Bond ETFs cover money markets and fixed interest (bond) contracts. These ETFs index funds essentially wrap up parcels of underlying holdings, i.e. the actual bonds, fixed interest contracts or bond funds, as per the index it is seeking to track.
Vanguard Australian Fixed Interest Fund ETF (ASX:VAF)
Vanguard Australian Fixed Interest Fund ETF (ASX:VAF) seeks to track the benchmark of the Bloomberg AusBond composite 0+ year index. As of 31 Mar 20, the 1, 3 and 5 year returns have been respectively 6.67%, 5.58% and 4.09%. This has a management fee of 20 basis points (.2%)
Vanguard Australian Government bond index fund ETF (ASX:VGB)
Vanguard Australian Government bond index fund (ASX:VGB) seeks to track the benchmark of the Bloomberg AusBond Govt 0+ year index. As of 31 Mar 20, its 1,3 and 5 year returns have been 7.35%, 5.92% and 4.19%. It has a management fee of .20% or 20 basis points.
Vanguard Australian Corporate Fixed Interest Index Fund ETF (ASX:VACF)
Vanguard Australian Corporate Fixed Interest Index Fund (VAS:VACF) tracks the Bloomberg AusBond credit 0+ year index. The 1 and 3 year returns for this ETF has been 4.51% and 4.79% respectively as of 31 Mar 20 , with a Management Expense Ratio of 26 basis points or .26%
Vanguard Global Aggregate Bond Index Fund (Hedged) ETF (ASX:VBND)
Vanguard Global Aggregate Bond Index Fund (Hedged) ETF (ASX:VBND) tracks the Bloomberg Barclays Global Aggregate float adjusted and scaled index, hedged into Australian dollars. As of 31 Mar 20 The one year return has been 5.38%, with a management fee of .20% or 20 basis points.
Vanguard International Fixed Interest Index Fund (Hedged) ETF (ASX:VIF)
Vanguard International Fixed Interest Index Fund (Hedged) (ASX:VIF) tracks the Bloomberg Barclays Global Treasury Scaled index hedged into Australian dollars. As of 31 Mar 20 its 1 and 3 year returns have been 7.03% and 4.75% respectively, with a management fee of .20%.
Vanguard International Credit Securities Index Fund (Hedged) (ASX:VCF)
Vanguard International Credit Securities Index Fund (Hedged) (ASX:VCF) tracks the Bloomberg Barclays Global aggregate corporate and government related scaled index hedged into Australian Dollars. As of 31 March 20, its 1 and 3 year returns have been 2.02% and 3.17% respectively, with a management fee of .30%
Vanguard Ethically Conscious Global Aggregate Bond Index Fund (ASX:VEFI)
Vanguard Ethically Conscious Global Aggregate Bond Index Fund (ASX:VEFI) tracks the Bloomberg Barclays MSCI global aggregate SRI exclusion float adjusted hedged into AUD index. Its one year return (as of March 2020) was 5.63%, costing a management fee of .26%.
Vanguards Property ETFs in Australia
Vanguard also ETFs which trade underlying shares of property and property portfolios, through the use of Real Estate Investment Trusts.
Vanguard Australian Property Securities Index Fund (ASX:VAP)
Vanguard Australian Property Securities Index Fund (ASX:VAP) tracks the Standards and Poors ASX 300 A-REIT index (Australian real estate investment trust). Its one year return is -31.39% (OUCH), 3 year return is -4.88% and 5 year return is .39% (as of March 2020). The management fee is .23%
One of Vanguards core offerings in Australia is its Australian shares ETFs, this is probably its most popular and widely understood financial product that it offers as an Australian ETF.
Vanguard Australian Shares Index Fund (ASX:VAS) tracks the Standards and Poors ASX 300 index (top 300 companies by market cap). It has a management fee of 10 basis points, and as of March 2020 its 1, 3 and 5 year returns have been -14.58%, -.69% and 1.28% [thanks to the market correction].
Vanguard Australian Shares High Yield Fund (ASX:VHY) tracks the FTSE Australia High dividend yield index. With a management fee of .25%, VHY’s 1, 3 and 5 year returns (as of March 2020) have been -18.11%, -4.26% and -2.06%.
Vanguard MSCI Australian Large Companies Index ETF (ASX:VLC)
Vanguard MSCI Australian Large Companies Index ETF (ASX:VLC) tracks the MSCI Australian shares large cap index. It costs .20% MER, and its 1, 3 and 5 year returns as of March 2020 are -12.73%, -.8% and .12%.
Vanguard MSCI Australian Small Companies Index ETF (ASX:VSO)
Vanguard MSCI Australian Small Companies Index ETF (ASX:VSO) seeks to track the MSCI Australian Shares Small Cap Index. With a MER of .3%, its one of the more expensive ETFs, and as of March 20 its 1,3 and 5 year returns are -21.24%, -1.81% and 1.84%.
Vanguard International Shares Index Fund (ASX:VGS) tracks the MSCI world ex-Australia (with net dividends reinvested) in Australian dollars index. As of March 2020, the 1, 3 and 5 year returns have been 4.56%, 10.05% and 8.21%. The MER is .18%
Vanguard International Shares Index Fund (Hedged) (ASX:VGAD) tracks the MSCI world ex-Australia (with net dividends reinvested), hedged into AUD index. Its 1,3 and 5 year returns have been -10.98%, 1.72% and 3.89% (as of March 2020). The management fee is .21%.
Vanguard Ethically Conscious International Shares Index Fund (ASX:VESG) tracks the FTSE developed ex Australia ex non-renewable energy/Vice products/Weapons in Australian dollars. The one year return as of March 2020 is 8.48%, with a management fee of .18%
Vanguard Emerging Markets Shares Index Fund (ASX:VGE) tracks the MSCI emerging markets index (with net dividends reinvested) in AUD. It has a whopper of a MER at .56% and its 1,3 and 5 year returns are -4.86%, 5.37% and 3.7% respectively (as of March 2020)
Vanguard International Small Companies Index Fund (ASX: VISM)
Vanguard International Small Companies Index Fund (ASX:VISM) tracks the MSCI world ex-Australia small cap index. with a MER of .32%, its one year return (as of March 2020) was -9.63%
Vanguard All-World ex-US Shares Index ETF (ASX:VEU) tracks the FTSE all world ex US index. Its MER is .08% and as of March 20 its 1, 3 and 5 year returns are -2.25%, 5.33% and 4.01% respectively.
Vanguard US Total Market Shares Index ETF (ASX:VTS) tracks he CRSP US total Market Index (approx 3500 stocks) with a MER of .03% it is one of (if not the) cheapest ETFs on the market, and its 1, 3 and 5 year returns as of March 2020 are 5.32%, 11.91% and 10.53%.
Vanguard FTSE Europe Shares ETF (ASX:VEQ) tracks the FTSE developed Europe all cap index (with net dividends reinvested) in australian dollars. It has a MER of .35% and its 1 and 3 year returns as of March 2020 are -3.64% and 4.17%.
Vanguard FTSE Asia ex Japan Shares Index ETF (ASX:VAE) tracks the FTSE asia pacific ex Japan, Australia and New zealand net index in Australian Dollars. It has a MER of .4% and its 1 and 3 year returns have been -.46% and 7.44% as of March 2020.
Vanguard Global Multi-Factor Fund (ASX:VGMF)
Vanguard Global Multi-Factor Fund (ASX:VGMF) tracks the FTSE developed all-cap in Australian dollars index. It has a MER of .33% and you will need to consult Vanguards website for performance details
Vanguard Global Minimum Volatility Fund (ASX:VMIN)
Vanguard Global Minimum Volatility Fund (ASX:VMIN) tracks the FTSE global all cap index (AUD hedged). it has a MER of .28% and its one year return as of March 20 was -9.08%.
Vanguard Global Value Equity Fund (ASX:VVLU)
Vanguard Global Value Equity Fund (ASX:VVLU) tracks the FTSE Developed all-cap in australian dollars index. It has a MER of .28% and as of March 2020 its one year return was -22.52% (OUCH!)
Vanguards Infrastructure fund ETFs in Australia
Infrastructure funds are funds which provide access to investments in infrastructure securities listed in developed countries; this exposes investors to infrastructure stocks like transportation, communications, and energy stocks.
Vanguard Global Infrastructure Index Fund (ASX: VBLD)
Vanguard Global Infrastructure Index Fund (ASX:VBLD) tracks the FTSE developed core infrastructure index. With a MER of .47%, the VBLD has aone year return of 5.45% as of March 2020.
Vanguards Diversified fund ETFs in Australia
One of Vanguards newer offering is its diversified funds. These are pretty awesome ETFs available to Australian investors on the ASX, and seek to provide an ETF product with a level of risk that suits a range of investment styles and needs.
The following diversified fund ETFs offer a range of portfolio asset allocation between income assets (cash, fixed interest and bonds) and growth assets (Australian and Global stocks)
Vanguard Diversified Conservative Index Fund (ASX:VDCO)
Vanguard Diversified Conservative Index Fund (ASX:VDCO) tracks Vanguards Conservative Composite Index. With a MER of .27%, as of March 2020 its 1 year return was 1.42%.
The Vanguard Conservative Composite Index targets 70% income to 30% growth asset allocation
Vanguard Diversified Balanced Index Fund (ASX:VDBA)
Vanguard Diversified Balanced Index Fund (ASX:VDBA) tracks Vanguards Balanced Composite Index, with a MER of .27%, as of March 2020 its 1 year return was -.85%.
The Vanguard Balanced composite Index seeks a 50:50 split between income and growth asset classes.
Vanguard Diversified Growth Index Fund (ASX:VDGR)
Vanguard Diversified Growth Index Fund (ASX:VDGR) tracks Vanguards Growth Composite Index. With a MER of .27%, as of March 2020 its one year return was -3.5%.
Vanguards Growth Composite Index seeks to allocate 30% income assets to 70% growth assets
Vanguard Diversified High Growth Index Fund (ASX:VDHG)
Vanguard Diversified High Growth Index Fund (ASX:VDHG) tracks the Vanguard High Growth Composite Index. With a MER of .27% its March 2020 one year return was -6.14%.
Vanguards High Growth Composite index seeks to allocate 10% to income assets, and 90% to growth assets.
Which Vanguard ETFs do I buy in Australia
This is a very personal question. The ETFs you choose to buy depends very much on your personal circumstances; your age, risk tolerance, aversion to volatility and your investing goals and timeline. I can’t comment on what you should do or provide you financial advice, but I can give you the example of what I am doing.
Personally, I invest almost entirely in growth assets (Australian and International shares) since I have a very long investment timeline (20+years) and I am not really concerned with volatility (I know it all evens out in the long term, and I can earn more money if I need to). I also am cost conscious, so I want to find the simplest ETF product with the lowest Management Expense Ratio.
Personally, I want access to ETFs which give me Exposure to the following markets;
- Australian Shares
- US shares
- Whole world Shares
To achieve this, for my personal goals and circumstances, I currently invest in the following ETFs in Australia (on the Australian Securities Exchange)
- Betashares Australian top 200 index fund (ASX:A200) MER = .07%
- Vanguard Total US Market (ASX:VTS) MER =.03%
- Vanguard Total world ex US (VAS:VEU) MER = .09%
and I have previously invested in;
- Vanguard Australian shares top 300 (ASX:VAS) MER = .10%
- Blackrock iShares S&P 500 ETF Total US market (ASX:IVV) MER = .04%
If you wanted to simplify your holdings, rather than buying a split of three separate ETFs like I do, instead you might choose to explore Vanguards diversified fund ETFs – just understand the management fees are slightly higher so you are paying for the simplicity / convenience.
If I personally was looking to buy just one of these, I would choose the Vanguard Diversified High Growth Index Fund as it matches my personal circumstances. The problem is it still allocates 10% of the portfolio to bonds and fixed interest and I don’t really want exposure to any bonds or fixed interest at all since I don’t care about volatility and just want the best long term return.
It also has a MER of .27% as opposed to the average MER of .063% that I pay – making it over 4 times as expensive to own, for only a VERY minimal saving of paperwork / admin / re balancing at tax time. I also can’t control the allocation of Australian to International shares, and the VDHG fund includes a hedged international stock fund (hedging is a waste of time in the long term as it creates portfolio drag and lower returns).
How do I buy Vanguard ETFs in Australia
This is by far the easiest part. Buying Vanguard ETFs in Australia is as simple as logging into your SelfWealth account and putting in a buy order for the ETF using the ASX ‘shortcode’ as listed above. You can use other brokers too, but I just use SelfWealth because it has Australia’s cheapest brokerage (PS check out my review of SelfWealth here)
Step 1 – Set up your SelfWealth account
This might take a few days if you haven’t got an account sorted yet. First up you should have a read of these articles;
- How to start investing in Australia
- Self Wealth Review
- Investing in Shares in australia for beginners
- The Captains Library: My list of essential financial reading
With those down range, you should have a pretty good understanding about investing, what a broker is and how this whole game works. You’ll understand that index investing through ETFs is the way to go because of simplicity and diversification, and the only thing we can control is the Fees and charges we pay along the way (so we best minimise them!)
Step 2 – Log into your SelfWealth Account
Lets assume your using the web browser. Open up the SelfWealth homepage and click ‘login’ in the top right hand corner. Once logged in, head on over to your Dashboard on the left hand side of the page – under ‘TRADING’ select ‘Place Orders’
Step 3 – Place a buy order for your Vanguard ETF
Clicking ‘Place Orders’ will open up a screen ‘Place Orders – Buy and Sell’. To place a trade for a specific ETF, enter the ASX ‘short code’ or the ETF name in the ‘Search Stock: Code or name’ bar.
In this case, we are going to place an order for VTS – Vanguards total US market stock fund. We type ‘VTS’ into the search stock bar, and select ‘BUY’ which populates the Quote tab on the right hand side
Fill out the quantity tab (100 selected here) and then select ‘Limit’ for your Price type. The limit price ensures you don’t buy anything above this price (and similarly, when selling a stock ensures you don’t sell anything below this price).
Limit orders are the sensible price type to use – market orders will mean your cost fluctuates with supply and demand – it could cost you more or less (the ASX is obliged to give ‘everyone’ the best deal they can and settle on a fair price).
Note that now the Quote tab on the Right Hand Side is now populated – 100 shares at $220 per share now shows you a cost of $22,000 plus $9.50 brokerage (note this is about a third of the Brokerage you would expect to pay with other online brokers).
Simply play around with the ‘Quantity’ and ‘Price per unit’ tabs until you are satisfied with the deal. When your ready, click ‘Review order’ which will take you to a confirmation page. Simply then confirm the order to make it go live.
Your order will now be placed in the cue at the Australian Securities Exchange, and when a seller is matched to your buy order, the trade will be executed and the shares will transfer to your name, and the money will be deducted from your brokerage account.
The trade normally takes T+2 or 2 days to settle, by which time you will get a confirmation from the share registry that the shares are now listed in your name, and you will be asked to confirm your details, link a bank account and whether you wish to participate in any Dividend Reinvestment Plan (DRP) if its available for your ETF.
Personally I dont use DRPs / DSSPs / BSPs since I love the endorphin rush when I see dividends hit my account – I get a feeling of almighty power! I suggest using your brokerage account to receive dividends since it makes it easy to keep track of everything come tax time (its all in one account and you can just print the statement).
Since VTS specifically is a cross listed fund domiciled in the US, you will need to fill out a W-8BEN-E form to send to the US internal Revenue Service. This is because Australia and America have a tax treaty; the form will stop you getting taxed at the full rate by both countries. Your share registry will facilitate this submission and many have templates that are super easy with informative guides on how to do so. Not all ETFs are cross listed, and many are changing over to get domiciled in Australia now so you won’t have to do as many of these forms.
This is optional, but it is good practice to keep a record of your trades for tax purposes – you need to be able to calculate your share cost base if you ever sell for capital gains tax purposes, otherwise the Australian Taxation Office will kick your arse.
I personally use ShareSight since its totally free if you have under ten shares (making it perfect for ETF holders) and it fully generates a complete tax statement for all of my share purchases, sales and dividends I receive.
You can check out the comprehensive review I did on ShareSight Here, where I even got to chat to their content manager and ask him a bunch of curly questions.
Its a bit of a whopper but I hope you got something out of this and understand Vanguard ETFs a bit better now. Remember that Vanguard aren’t the only offer of broadly diversified index tracking ETFs, as was shown in my personal investing strategy where I opted for the Betashares A200 Australian stock fund due to its cheaper management fee over the Vanguard Australian stock fund. Always do your own research, and shop around for the best deal before making an investment purchase!
If you have anything valuable to contribute to the discussion, let it be known in the comments below. What ETFs are you investing in?