Vanguard Total US Market ETF(ASX:VTS)

Vanguard ETF

Vanguard offers a Total US market exchange traded fund, which is cross listed to the Australian Stock Exchange under the ticker ASX:VTS. Vanguard say that the ETF is suited to;

Buy and hold investors seeking long-term capital growth, some income, international diversification, and with a higher tolerance for the risks associated with share market volatility.

Vanguard, VTS fund

This means Vanguard VTS is a great way that a smart investor seeking FI can start investing.

The details

VTS is essentially a growth ETF, which aligns to the boglehead style of investing for growing capital value (share price). The ETF is not hedged (it is not treated like a hedge fund) meaning that it is exposed to the fluctuating values of US vs AUS dollar (but this isn’t important, and over time the costs associated with hedging funds tend to erode any benefit that the hedging provides).

The dividend or equity yield is currently at 1.86%. It’s nice to see the dividends hit your account, but it’s not really going to be enough to live off unless you have a significant holding.

VTS (ASX:VTS) currently manages (AUD) $1.7 Billion spread across 3,591 holdings, and its underlying US fund size is approximately (USD) $1.21 Trillion. Its top holding is Microsoft, followed by Apple and Amazon – as per the breakdown below. It offers exposure to some of the world’s largest publicly traded companies in the United States.

Vanguard ETF
Top 10 VTS holdings (VTS Aug 2019 fact sheet)
Vanguard ETF
VTS sector allocations (VTS Aug 2019 fact sheet)

VTS offers what I have found to be the lowest MER of any stock market ETF. This is an ultra low MER of .03% or $3 per $10,000 invested per year. Currently the BlackRock iShares IVV Total US market fund is its closest competitor, charging a MER of .04% or approximately 30% more.

VTS is a cross listed fund, meaning it is not domiciled in Australia – this means you will need to fill out a W-8BEN-E tax form every three years. This is a relatively simple task that takes under 10 minutes and can be accomplished through the VTS share registry in Australia, Computershare. Computershare offer a detailed walk through, and individualised forms for personal investors, commercial investors and those investing through trusts such as family or discretionary trusts.

Vanguard manage VTS according to their three main priorities

Competitive long-term performance: Vanguard’s investment approach provides investors with an efficient way to capture long-term market performance.

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.

Vanguard, VTS product statement

Performance

VTS has performed in line with the index since its inception. Check out Vanguard Investments.com for the most up to date information on this ETF.

Vanguard ETF
Vanguard VTS performance against the CRSP total US market index (Vanguard.com)
Vanguard ETF
VTS capital share price growth since inception (google.com)

Why I own VTS

The US makes up some 40% of the total world market and VTS allows me to own a slice of $1.7B of well known brands like Alphabet (Google), Amazon, Apple, Facebook, Berkshire Hathaway, Visa, Exxon Mobil and Microsoft for an ultra low cost. The ultra low cost of $3 per $10,000 invested means that for every fortnightly investment decision that I make on VTS means I am only paying about $1 per year in management fees. This means I am spending almost 10 times the management fee on brokerage, which is already at a rock bottom price!

VTS vs IVV

VTS is slightly cheaper than IVV, now sitting at a MER of .03% vs the IVV’s MER of .04%. However, IVV is an Australian domiciled fund, wheras VTS is just cross listed onto the Australian Stock Exchange. This means for VTS you will need to spend approx 10 minutes every 3 years filling out a W-8BEN-E tax form to hand to the American tax system to make sure you don’t get taxed twice.

Lets put this into perspective. With a $100K holding, IVV is going to cost you $120 in management fees for every three years, wheras VTS is going to cost you $90. I am most certainly happy to save $30 by selecting VTS, and spending 10 minutes filling out the W-8BEN-E form. We are talking about very small amounts of money spent on management fees here.

The funds whilst very similar are not identical, and are managed ever so slightly differently. Check out the video below for more information, but don’t get analysis paralysis – I own both funds, and I simply buy which ever one has gone down more (but this tends to all even out long term). If they are the same and I had to choose I pick VTS due to the lower management fee.

Summary

In summary, I like VTS. I own shares in this ETF because I want to diversify from purely Aussie shares, and I am happy to accept the income drag that this produces, in order to accept global diversification and long term capital gain. It’s important that you do your own research and know what you’re comfortable with. Do you own VTS or a US index fund? Let us know in the comments below!

CaptainFI

Get FI !

Epilogue: 27th April 2020: I have since sold my holdings of IVV, and now purely invest in the Vanguard VTS ETF for exposure to US stocks

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3 thoughts on “Vanguard Total US Market ETF(ASX:VTS)

  1. Hi Captain
    My SMSF has 4.2 mil to invest. This was redeemed to me when Vanguard closed their managed payout fund without explanation.
    I am finding it difficult to deal with with Vanguard Australia who do not respond to emails or attempts at contact.
    I am interested in US shares.Do you have any suggestions?

    1. Tony – that is epic mate! Sounds like you are set for life. Annoying when managed funds change like that isn’t it? I did not have a great experience with managed funds earlier in my investing career. There are a heap of great ways to invest your money, but it sounds like you might do best to visit a financial advisor since 4.2 mil in a SMSF is a pretty complex topic. I would hit up the ASIC Moneysmart website review page for financial advisors, and see if you can find a good, independent, fee for service advisor. I would also suggest having a read through the barefoot investor who points out some interesting facts regarding SMSF versus traditional super funds which are now offering index based products. I personally have used index based superannuation products and many of my family do – it seems to be the ‘new normal’ and is incredibly simple and easy. As for my investments, you can read where I have personally chosen to invest (split between Australia, US and other international markets) and there are of course ways to get exposure to all of these markets through both a conventional brokerage account and through a SMSF or standard super account. Don’t overcomplicate it though Tony. Youve done great to get where you are – Keep it simple and reap the benefits!

  2. Hi Cap,

    First time investor here, experimenting with $10k to start. I have 2 options. Option 1, put 100% in VDHG, option 2, equal-weighted in A200/VTS/VEU (I wanted to try option 2).

    A few questions:

    Is VTS and VEU cancelled on the Vanguard Personal Investor website? They were buried in a page saying “The following product can’t be bought on Vanguard Personal Investor”. I saw VTS/VEU in your Aug 2021 update, so was surprised when i couldn’t see it front and center on Vanguard’s own menu

    Second, am I right in understanding I cannot buy VTS and VEU on Vanguard’s own platform, but still can buy it elsewhere (e.g. through a broker like Pearler)? So still open to trade?

    Third, is there any point using the source fund’s own platform at all or just go to a broker for everything (e.g. Pearler, Superhero etc)? I noticed on your Resources page you only mentioned brokers but didn’t mention Vanguard Personal Investor etc…

    Finally, I’m a NZ-citizen (living and working in Australia). I believe we are tax exempt here from capital gains? But with this US-domiciled business, and my NZ status, any resource recommendations where I can learn about tax treatment for buying funds like VTS? Quite nervous about all the tax stuff.

    Thanks very much if you are able to provide any tips/pointers. apologies if I have missed it on other threads! So much content to take in, but I’m incredibly excited and inspired by your blog!

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