December 2018 was one of the most volatile quarters on the Australian share market in recent years. The Vanguard Australian Shares Index ETF (ASX: VAS), which provides this exposure, couldn’t escape the heat, according to a recent update from Vanguard.
For readers that aren’t aware of this exchange traded fund (ETF), it aims to provide low cost, diversified exposure to the Australian companies and property trusts in the S&P/ASX 300 Index, which is 300 of the biggest businesses listed on the ASX in Australia.
The volatile December 2018 quarter
In the December 2018 quarter, the Vanguard Australia Shares Index ETF delivered a total return of -8.42%, which Vanguard said consisted of an income distribution of 0.9% and a -9.32% decline in price.
Despite the declines, most investors were still happy to leave their funds invested in the ETF, with the ETF holding $3.09 billion at the end of the 2018 calendar year.
In a slightly odd development, the S&P/ASX 300 Index had 295 holdings according to Vanguard, but Vanguard stuck to having 300 holdings.
The Vanguard Australian Shares Index ETF has one of the cheapest operating costs out of any Australian shares-focused ETFs on the ASX due to Vanguard‘s commitment to reducing fees as much as possible. Its annual management fee is 0.14% per year, with 0.01% per year of indirect costs.
However, the cheapest ASX ETF on the market is currently the Betashares Australia A200 ETF (ASX: A200), which is offered by Betashares. As we reported recently, this one has an annual management expense ratio of 0.07% per year.
The decline in the share market has boosted the equity/dividend yield of the Vanguard Australian Shares Index ETF, it is now 4.5%.
Lower share prices improve the valuation metrics and dividend yield. The average price/earnings ratio of companies in the VAS ETF at the end of December 2018 was 15.3x and the price/book ratio was 1.8x. The return on equity ratio stood at 12.4% – legendary investor Charlie Munger said long term returns should track fairly closely to this metric.
At the end of December 2018 the Vanguard Australian Shares Index ETF’s five largest holdings were Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Westpac Banking Corp (ASX: WBC), CSL Limited (ASX: CSL) and Australia and New Zealand Banking Group (ASX: ANZ).
In terms of sectors, the two largest industries remain a 32.2% allocation to financials and 18.1% allocation to materials.
The fall in the share market could mean this is an opportune time to accumulate some units of the Vanguard Australian Shares Index ETF.
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