What is Vanguard?
Vanguard is a funds management business that is owned by its own investors. It was founded in 1975 and now has (or had) around AU$9.7 billion. It has 192 funds in the US, and 232 funds in markets outside the US. It’s a world leader in providing low-cost ETFs.
What does Vanguard Australian Shares Index ETF do?
It invests in 300 of the biggest businesses on the ASX. It gives investors the biggest exposure to the biggest shares like CSL (ASX: CSL), BHP (ASX: BHP) and CBA (ASX: CBA).
The ETF has a very low annual cost of just 0.10% per year. You don’t actually see that cost, it just comes of our investment balance with Vanguard. Which is exactly what all ETFs and fund managers do.
As the ASX 300 changes the Vanguard Australian Shares Index ETF will rebalance and buy more shares of some businesses whilst selling ones that get smaller. Sometimes a tiny business grows enough to enter the ASX 300 and kick out another business which has been falling.
One of the best things about ETFs is that it’s passive for the investor. Often the best approach with investing is simply to do nothing and ride the growth higher over the long term (whilst re-investing dividends).
Why choose this ETF over BetaShares Australia 200 ETF (ASX: A200)?
Some people may argue that BetaShares Australia 200 ETF is a better option because it has a lower annual fee of 0.07%. If finding the lowest fee today is your goal then the BetaShares one may be better. Both are good options. They both offer pretty high dividend yields, that’s for sure.
As the Vanguard Australian Shares Index ETF gets more investors on board it will be able to lower its fee further. Will BetaShares keep decreasing its cost? There’s no guarantee it will. Perhaps you just want to support Vanguard, which has an attractive ownership model.
I think there’s some benefit to be invested in the ASX shares ranked 201 to 300, even if the allocation is small. They provide more diversification. The ASX is far too focused on banks and resources for my liking. The smaller companies (and CSL) are the ones that are producing the long term growth for the ASX. I’d want to be invested in those growing shares. Though there are plenty of other ETFs out there that own growing businesses in them.