Here’s why I think the Vanguard US Total Market Shares Index ETF (ASX: VTS) could be a good option for the core part of your portfolio. But first…
What’s an exchange-traded fund (ETF)?
If you’re not familiar with ETFs, you can work through Rask’s free beginner ETF course to get up to speed.
An ETF basically lets you invest in a whole bunch of different businesses with a single investment. It’s very handy if you want to get good diversification, but you don’t want to buy 50, or 100 or 1,000 businesses yourself. In fact, I’d say buying 1,000 different companies yourself would be a very poor choice because of all the brokerage costs alone.
Getting familiar with the Vanguard US Total Market ETF
VTS is one of the biggest ETFs on the ASX and is just over $2 billion in size. It’s a popular option for Aussie investors.
The concept of this ETF is that it gives exposure to a large part of the US market, particularly some of the largest companies in the world which are listed in the US.
As you might expect from a US-focused ETF, the biggest sector allocation in the ETF is technology. But there are also sizeable weightings to companies in the sectors of consumer discretionary, industrials and health care.
What are VTS’ top holdings?
The VTS ETF typically invests in more than 3,000 companies listed on US markets.
In terms of the top 10 holdings, at the end of December 2020 those biggest positions (in order) were: Apple, Microsoft, Amazon, Facebook, Tesla, Alphabet, Johnson & Johnson, Berkshire Hathaway, JPMorgan and Visa.
I’m sure you know of many other businesses in the portfolio such as Proctor & Gamble, Walt Disney, Mastercard, PayPal, Netflix, Coca Cola, Walmart and Intel. Almost every major, multi-national US company you could think of is probably in this ETF’s holdings.
Management fees
VTS is one of the cheapest ETFs on the ASX – its management fee is just 0.03% per year. That’s really great for investors because almost all of the gross returns end up in investor pockets.
What about the returns?
The net returns have been really good in my opinion. Over the past three years, Vanguard US Total Market Shares Index ETF’s average return per year has been 15%. Over the past 10 years, it has returned an average of 17% per year.
This is a high-performing ETF because its larger holdings are just such good businesses. I think it could form a core part of a portfolio and it’s better than ASX-focused ETFs in my opinion.
There are other ETFs that I like too such as Betashares Global Quality Leaders ETF (ASX: QLTY) that are high quality and give good diversification.
Not only is VTS a good idea, but I also suggest getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.
