The Vanguard FTSE Asia Ex Japan Shares Index ETF (ASX: VAE) is the one ASX ETF with a focus on Asian shares that I’d choose. Here’s why…
What Is An ETF?
ETFs are investment funds that are listed on a securities exchange. They can be ‘managed funds’ or ‘index funds’, or in other words, active or passive.
Typically, ETFs give an investor exposure to many different shares or assets with a single purchase, offering one of the quickest and easiest methods of achieving diversification.
It’s important to note that investing in Asian shares comes with risks. With the ongoing China-USA trade war, it remains very uncertain how Asia and particularly China will fair. Some figures show that growth is beginning to slow, particularly looking at measures such as infrastructure spending and construction.
However, it should not be forgotten that China is the world’s second-largest economy and could pass the US economy within a decade. Valuations in Asia are generally lower than the current Australian and US markets, and a lot of Asian countries are positioned for higher GDP growth in the coming years. So, how can you take advantage?
Vanguard’s VAE Emerging Markets ETF
The reasons I would pick the Vanguard Asia ETF, VAE, are pretty simple. It has comparable performance to most other Asia-focused ETFs, like the iShares Asia 50 ETF (ASX: IAA), but it has lower fees and better diversification.
VAE’s management costs are just 0.4% per year, compared to 0.5% per year for IAA or more for similar ETFs. The Vanguard ETF has been operating since December 2015 and has returned 12.56% per year over the last three years.
Unlike IAA, which has just 50 holdings, VAE is well-diversified and holds 1,176 companies in its portfolio. VAE avoids relying too heavily on China with a 34.3% allocation. Korea, Hong Kong, Taiwan and India all earn allocations of more than 10%.
The companies in the VAE ETF have a weighted average earnings growth rate of 10.7% per year and a return on equity ratio of 15.48%.
While there are several reasonable options for Asia-focused ETFs, VAE is my pick for its low fees, diversification, earnings growth rate and high return on equity.
Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.