Review of Vanguard Total Australian Market S&P ASX 300 (ASX:VAS) ETF from a long term index fund investor on the path to Financial Independence.
VAS is Vanguard’s offering for an Australian ETF. The Vanguard Total Australian Market ETF tracks the Standards and Poors S&P ASX 300 index, which is the top 300 Australian publicly traded companies by market capitalization (the size of the company). This provides the majority of exposure to the Australian markets, with a small exposure to foreign markets (Vanguard claim as of Aug 2019 that the foreign market exposure is 3.3% of the entire fund) – of course, it is worth noting that large Australian companies have performance directly tied to overseas exports (i.e. mining), so it’s not as insular to the Australian economy as you might first think.
Vanguard claim that this fund is suited to buy and hold investors seeking long-term capital growth with tax-effective income along the way (from the almost fully franked dividends), and Vanguard manages VAS in accordance with its principles of;
Competitive long-term performance Vanguard’s investment approach provides investors with an efficient way to capture long-term market performance.
Vanguard
Diversification The Fund invests in a diversified portfolio of securities, which means the Fund is less exposed to the performance fluctuations of individual securities.
Low cost investing The Fund has low ongoing fees as we strive to minimise the costs of managing and operating the Fund.
For more details, read on.
The Good
- Very simple S&P ASX 300 tracker
- Low MER (Vanguard also has culture of lowering fees)
- Almost fully franked dividends
- Some global exposure (~3%)
- Bias towards larger, established ‘blue-chip’ companies
- Contains exposure to Australian Real Estate market
- Long term return of approx 10%
The Bad
- Higher MER than A200
- The higher dividend yield on Australian shares may not be as tax-effective as a capital growth strategy (even with franking credits) during the wealth accumulation phase.
- Hard to quantify the international exposure based on held Australian company’s international exports.
- Ideally need to add other ETFs for global exposure
- Heavy on Banks (financials) and Mining (materials)
Verdict: VAS is one of the most cost-effective and passive ways to get exposure to the Australian stock market through an Exchange Traded Fund. It tracks the S&P ASX 300 index, and has a MER of 0.10%
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The details
Vanguard Total Australian shares (ASX:VAS) is currently managing approx (AUD) $28.38 Billion across 296 holdings in line with the Standards and Poors ASX 300 index. There is a significant sector allocation to financials, including the big four Aussie banks, as well as other blue chips in the materials and mining sector such as CSL construction and BHP Group. Combined, the top 10 holdings account for 43% of the total fund.
In July 2019 VAS announced it had reduced its annual fees, from the original Management Expense Ratio of .14% down to a more reasonable .10%. This means it will cost you just $10 per year, for every $10,000 you have invested in VAS. This is still very low, especially compared to the market average Aussie mutual fund fee of 1.6% p.a. – VAS is 16 times cheaper than the average! However, A200 is probably VAS’s main competitor, which offers a .07% MER, for a slightly different product (Betashares A200 tracks the Solactive 200 index, which is basically the top 200 companies by market cap and is approx 97% the same as VAS) .
Performance
VAS has provided good returns in line with the index since inception. They provide a very respectable dividend over the past year of 4% with a franking level of 82.2%. This means the grossed up dividend yield of VAS is 4.7%. This number is a fairer comparison to other share returns after accounting for franking tax benefits. VAS consistently provides a high degree of franking which makes the dividends very tax effective – 2016: 81.3%, 2017: 77.8%, 2018: 71.5%, 2019: 80.6%.
Why I initially picked VAS
I initially picked VAS when I started learning about index investing because I want edto invest in Australian stocks, and I realised I did not have time nor the inclination to pick individual stocks. VAS was an easy option to get a passive investment in the Australian market with low management fees.
It has had good long term capital growth in line with overall expectations, and also passes on dividends from the portfolio, which come with a majority franking credit (80.6% franking in 2019) making it a tax effective income source (although I do note that with capital growth investments you can defer the tax to the point at which you actually sell, which does actually make it more efficient for high income earners on the path to FI – but psychologically its not as fun dividend checks landing in your bank account).
VAS vs A200 vs IOZ
Similar to the discussion between US ETFs VTS (Vanguard) and IVV (BlackRock iShares), there is a choice to be made in the Australian market between the Vanguard offering VAS and the Betashares offering A200 and the Blackrock offering IOZ. VAS historically had twice the management fee of A200, but given they recently reduced this to a MER of .10% which makes VAS more attractive and the discussion more even.
BetaShares Australian market Solactive ASX 200 (ASX:A200) – MER = 0.07%
Blackrock IShares Core S&P ASX200 Australian Shares (ASX:IOZ) – MER = 0.09%
Vanguard Total Australian Market S&P ASX 300 (ASX:VAS) – MER = 0.10%
Whilst A200 is the cheapest in terms of management fees, its not strictly a 1 for 1 comparison as each ETF tracks a slightly different index.
VAS tracks the S&P ASX 300 index, and A200 tracks the Solactive 200 index. This makes them different products, although very similar (something like 97% similar in terms of underlying shares held). This is because both of these are basic market-cap-weighted index trackers, meaning they are much heavier on the larger blue-chip companies than they are on the smaller ones.
The comparison between VAS and IOZ is interesting – they both track the Australian market using an S&P ASX index – however IOZ tracks the S&P ASX 200 index, which is the top 200 Australian companies by market cap according to the Standards and Poors index, rather than the top 300 which VAS uses. This is a similar situation to VAS vs A200, however, The S&P index is a different formula to the Solactive index so IOZ and A200 are not technically the same thing (but probably very very close)
Summary
VAS is Vanguard’s offering for an Australian ETF. The Vanguard Total Australian Market ETF tracks the Standards and Poors S&P ASX 300 index, which is the top 300 Australian publicly traded companies by market capitalization (the size of the company). This provides the majority of exposure to the Australian markets, with a small exposure to foreign markets (Vanguard claim as of Aug 2019 that the foreign market exposure is 3.3% of the entire fund) – of course, it is worth noting that large Australian companies have performance directly tied to overseas exports (i.e. mining), so it’s not as insular to the Australian economy as you might first think.
Vanguard claim that this fund is suited to buy and hold investors seeking long-term capital growth with tax-effective income along the way (from the almost fully franked dividends)
To wrap up, VAS is a pretty solid choice if you want no-frills passive exposure to the Aussie market with low management fees – but make sure you compare alternative Australian ETFs (including things like the Management Expense Ratio, Index, Total market cap and liquidity). Other Australian ETFs include;
- BetaShares Australian market Solactive ASX 200 (ASX:A200) ETF review
- Blackrock IShares Core S&P ASX200 Australian Shares (ASX:IOZ)
Addendum
I sold my VAS shares and moved this cash into A200 due to its lower management fee and similar risk exposure
Financial Disclaimer
Financial Disclaimer: CaptainFI is NOT a financial advisor and does not hold an AFSL. This is not financial Advice!
I am not a financial adviser and I do not hold an Australian Financial Services Licence (AFSL). In this article, I am giving you factual, balanced information without judgment or bias, to the best of my ability. I am not giving you any general or personal financial advice about what you should do with your investments. Just because I do something with my money (or use a particular service or platform) doesn’t mean it is automatically appropriate for your personal circumstances. I do not recommend nor endorse any financial or investment product, and my usage or opinion of any product should not be interpreted as an endorsement, advertisement, or intent to influence.
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Captain FI is a Retired Pilot who lives in Adelaide, South Australia. He is passionate about Financial Independence and writes about Personal Finance and his journey to reach FI at 29, allowing him to retire at 30.