Want to invest in ASX blue chips? Think about Vanguard MSCI Australian Large Companies Index ETF (VLC)

Do you want to invest in ASX blue chips? Vanguard MSCI Australian Large Companies Index ETF (ASX: VLC) could be the answer.

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.

Why ASX blue chips?

People who haven’t invested in ASX shares before may want to go for blue chips which are supposedly more reliable than smaller businesses. Large businesses have built strong market positions which should allow them to earn higher margins and generate big profit.

Due to their size, blue chips don’t need to hold on to most of the annual profit for growth – they’re already mature businesses. That means they can pay out a lot of the profit as an attractive dividend each year, resulting in attractive dividend yields.

What blue chips does Vanguard MSCI Australian Large Companies Index ETF invest in?

It’s invested in 23 ASX blue chips. Its top 10 holdings are: CSL (ASX: CSL), Commonwealth Bank (ASX: CBA), BHP (ASX: BHP), Westpac (ASX: WBC), NAB (ASX: NAB), ANZ (ASX: ANZ), Wesfarmers (ASX: WES), Woolworths (ASX: WOW), Transurban (ASX: TCL) and Telstra (ASX: TLS).

The ETF has a medium market capitalisation of $53.1 billion according to Vanguard.

The trailing dividend yield of the ETF is high at 4.7%, not including the bonus benefit of franking credits.

Featured video: Franking credits explained

Why wouldn’t you want to invest in this ETF?

Vanguard MSCI Australian Large Companies Index ETF is invested in 23 shares, that’s better diversification than just owning one or two banks. But it’s not as much diversification as offered by options like Vanguard Australian Shares Index ETF (ASX: VAS).

There is also the problem of industry diversification as with most ASX-focused ETFs. Vanguard MSCI Australian Large Companies Index ETF has 37.8% of the portfolio allocated to financials and 19.6% is allocated to materials.

Having almost 60% of the portfolio allocated to two industries with not much growth potential isn’t exactly ideal. You may end up missing out on growth shares like Xero (ASX: XRO) and A2 Milk (ASX: A2M).

Taking into account the ETF’s large dividend yield, the 2.5% per annum total ETF returns over the past five years means it has experienced a negative capital return. There are plenty of ETFs I’d prefer, starting with Vanguard Australian Shares Index ETF.

From 200+ ETFs in Australia, our top investment analyst has just identified his #1 ETF for 2021 and beyond.

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From 200+ ETFs in Australia, our top investment analyst has just identified his #1 ETF for 2021 and beyond.

Low fees? Check.

Long-term growth potential? Check.

Regular cash returns? Check!

This ETF makes investing in ETFs "Super-Easy".

Simply click here to access the full ETF report, ticker code, and step-by-step investment guide. Our expert's #1 ETF report is completely free.

No gimmicks, no payment, no credit card info. Just click the link below and enter your email address. We'll send you the report right away.

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The information on this website is general financial advice only. That means, the advice does not take into account your objectives, financial situation or needs. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. Please read our Terms & Conditions and Financial Services Guide before using this website.

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