Vanguard Australia provides some great ASX exchange-traded funds (ETFs) but the Vanguard FTSE Asia ex Japan Shares ETF (ASX: VAE) is my favourite.
Who is Vanguard?
Vanguard is one of the world’s largest investment organisations with around 415 low-cost funds and ETFs across 18 locations worldwide. The idea of Vanguard is that there are no outside owners seeking profits and instead the investors in Vanguard products are the owners and benefit from lower and lower costs.
An ETF is a way to buy into an investment fund through an exchange, such as Australia’s ASX. There are various types of funds including index funds which give investors access to good diversification with one investment.
Vanguard FTSE Asia ex Japan Shares Index ETF
I have full respect for everyone that just invests in one or two ETFs, but I think it’s possible to beat the ASX’s major indices with the right combination of investments, which is why I was attracted to the Vanguard FTSE Asia ex Japan Shares Index ETF.
How it Invests
VAE looks to invest in a large number of Asian businesses outside of Japan, Australia and New Zealand. At the last count it had 888 holdings, which is great diversification if you ask me.
When you look at the country allocation of the ETF it has 32.6% allocated to China, 14.1% allocated to South Korea, 12.9% allocated to Taiwan, 12.8% allocated to Hong Kong and 12.6% allocated to India. with smaller allocations to Thailand, Malaysia, Indonesia and the Philippines.
What I like about the idea of this ETF is that you simply can’t get exposure to many of these countries from other ETFs or even individual companies. It’s one of the few ways to invest in Asia on the ASX.
Over half of the VAE ETF is invested in financial and technology businesses and I think it’s very positive that over 21% of the ETF is invested in technology businesses – which is better than the ASX which has a lot more resources.
In terms of the actual business holdings, its top four biggest holdings are Tencent, Samsung, Alibaba and Taiwan Semiconductor Manufacturing. I think these are some great Asian investment options.
Valuation And Dividend Yield
According to Vanguard, at the end of May 2019, the ETF had a price/earnings ratio of 12.6x with an earnings growth rate of 10.5%, which is a PEG of almost 1, which is good value for an ETF.
The ETF also has a dividend yield of 2.7%, which is materially higher than USA based ETFs.
The main risk to me is Chinese risk. The businesses may be as operationally capable as Western businesses, but Australian and American businesses don’t face the intrusion and uncertainty of the Chinese Government that can make serious changes.
Time To Invest In VAE?
I would certainly be comfortable buying some units today, it looks good value comparatively. However, I wouldn’t want to make it a large part of my portfolio. At most I’m looking at it being 5% to 10% of my portfolio over time.
Jaz owns units of Vanguard FTSE Asia ex Japan Shares Index ETF at the time of writing, but this could change at any time.