I think Vanguard US Total Market Shares Index ETF (ASX: VTS) is worth considering. It is one of the most popular ETFs on the ASX for a reason. I have at least three reasons why it’s great.
For some investors they might gloss right passed Vanguard because it is a well-known name and maybe seen as ‘basic’. However it is worthwhile to have solid all-rounders in your portfolio like the VTS ETF.
When considering ETFs there are many factors to look at, these three reasons below are some of the first things I look at when considering any ETF.
Diversification
Investors tend to have a ‘home ground’ bias when it comes to shares and our home ground in Australia is the ASX. Unfortunately there is only so much diversification an investor can achieve from their home ground share market.
VTS ETF is a great way to blast off out of our small share market and into the instantly larger US market for diversification. It holds a whopping 3,935 different holdings.
Taking a closer look at its diversification it shows that 27.7% is made up from technology stocks with some of the worlds biggest names including Apple, Microsoft, Alphabet and Facebook.
The other sectors with more than 10% allocation are consumer discretionary (15.7%), industrials (13.9%), health care (13.2%) and financials (10.9%).
Low costs
Fees and costs eat into investment returns and are something every investor needs to be aware of when making investment decisions.
When considering fees it’s important to realise that 1% might sound small, but it will have a very real impact on the compounding effect for an investor’s portfolio and could amplify into many thousands of dollars of opportunity cost over the life of an investment.
The VTS ETF has a tiny annual fee of just 0.03% and it is one of the lowest ETF annual fees on the ASX. This is fantastic news for your portfolio and all the potential compounding gains.
Strong holdings
An ETF can only perform as well as its holdings do. Thankfully this ETF has very good holdings.
Its top 10 holdings are almost all household names around the world and represent 23.6% of the VTS ETF. A handful of the top 10 holdings are Apple, Microsoft, Alphabet, Amazon, Facebook, Tesla and Berkshire Hathaway.
These businesses are among the best in the world at what they do. For example Apple is a world leader in smartphones, Microsoft dominates the office software space, Alphabet/Google owns the internet search space and Youtube is another big player for Alphabet, and so on..
The above names and the portfolio as a whole has performed vey well in recent years.
Returns are what we are all chasing right? Although we should all keep in mind that past performance is not an indicator of future performance.
However it is good to know what the returns have been in recent times when considering a new investment. Over the last ten years it has returned an average of 19.92% per year, if we halve the timeframe to five years it has returned an average of 18.21% per year.
