Vanguard US Total Market Shares Index ETF (ASX: VTS) could be on the best ETFs on the ASX for a number of different reasons.
Exchange-traded funds (ETFs) are a very effective way to get diversification from a single investment. But not all ETFs are as good as each other. I think the VTS ETF is particularly good for a number of different reasons:
Low costs
One of the ways to compare different ETFs is by looking at their annual fee cost. If investments have similar holdings, or are going to provide similar gross returns, then investors would benefit from finding the lowest costs they can.
Vanguard US Total Market Shares Index ETF has one of the lowest annual fees out of any ETF on the ASX with a cost of just 0.03% per annum. That thankfully means that most of the gross returns get turned into net returns.
Good global diversification for Aussies
Plenty of Australian portfolios are heavily focused on ASX shares, with businesses like banks and miners particularly featuring.
But it could be a good idea to diversify into different sectors and different share markets.
Vanguard US Total Market Shares Index ETF has good diversification for a number of different reasons.
It has almost 3,800 holdings. That’s an enormous number of holdings.
Those holdings are spread across a number of different sectors. In-fact, five sectors have a double digit weighting: technology (25.6%), consumer discretionary (15.9%), industrials (14.3%), healthcare (13%) and financials (12%).
But the overall index is quality. It has a return on equity (ROE) ratio of almost 17%. ROE isn’t everything, but it’s a good indicator of the economic power of the underlying holdings.
Investors get exposure to some of the world’s strongest technology businesses including: Microsoft, Apple, Alphabet, Amazon and Facebook.
Strong historical returns
Past performance is no guarantee of future performance, as the saying goes.
Over the last 10 years the VTS ETF has produced a net return per annum of 17.9%. That’s very strong, though the next 10 years probably won’t be as strong with interest rates expected to rise.
Summary thoughts on VTS ETF
It has almost everything you could want from an ETF. The yield is pretty low because of the low interest rate environment and the types of businesses at the top of the holdings. But it has low fees, great diversification and has been performing well.
I’d also consider some ASX growth shares that might be interesting to think about.
