Vanguard is the most popular ETF manager in Australia and has been for quite a while. Last year 2019 was a record year for Vanguard ETFs, with Vanguard ETF Assets Under Management (AUM) growing to $19.5B, making 2019 Vanguard’s strongest year since the launch of their first ETFs on the ASX 10 years ago. So I guess that means they must be doing something right?
2019 Australian industry listed ETF market cash flow by issuer (Top 5)
|Cash Flow |
|Cash Flow |
(% of total market)
But for me personally these exchange traded funds for passive investing hold a special place in my heart. I spend way too much of my time looking up all the different ETF options available, their historical returns, dividend yields, management fees, diversification.
Today all of that research and time spent analysing Vanguard ETFs really late at night is going to be put to good use because we’re going to be covering what in my opinion are the best Vanguard ETFs in existence for the following 7 different categories.
- The best Vanguard ETF for Fixed Interest
- The best Vanguard ETF for High Growth
- The best Vanguard ETF for Property Exposure
- The best Vanguard ETF for Australian Shares
- The best Vanguard ETF for International Shares
- The best Vanguard ETF for the Emerging Market
- The best Vanguard ETF Overall to suit most investors.
This isn’t going to show you how you can get rich quick, as that isn’t the style of Vanguard ETFs or passive investing more generally. But it will provide you with some great options to consistently grow your wealth over the long term if you stick to a stable passive investing strategy using these ETFs.
Best Vanguard ETF for Fixed Interest – VIF
First we’re going to be starting off with an easy one and that’s the best Vanguard ETF for people who want Fixed Interest. This is a good one for people to pay attention to that are a bit further down the road in their investing journey and don’t necessarily need or want high risk or high returns. And are instead looking for somewhere to park their money to get stable fixed returns that won’t really be affected as much by market fluctuations. Because this ETF is going to get you consistent stable returns over the very long term as it invests in government treasury notes and treasury bonds. Treasury bills, notes and bonds are effectively debt that the government of a country owes and that the government will back. So it’s an extremely safe form of investment as it’s very unlikely a government will pay their debts and if they don’t we have a lot more to worry about than our investment portfolios.
The best Vanguard ETF for Fixed Interest is the Vanguard International Fixed Interest Index (Hedged) ETF also known on the ASX as VIF. This ETF seeks to track the return of the Bloomberg Barclays Global Treasury Scaled Index hedged into Australian dollars before taking into account fees, expenses and tax. As an overview VIF provides low-cost exposure to high-quality, income generating securities issued by governments around the world. The ETF only invests in securities that are BBB- to AAA as rated by Standard & Poors and is hedged back to Australian dollars so the value will be unaffected by currency fluctuations.
Why I think this VIF is the best Fixed Interest Vanguard ETF compared to some of their others is firstly it has the lowest management fee of all their options at 0.20% p.a and secondly because it provides global exposure across over 30 countries so you aren’t necessarily exposed to just a single country performing badly, in the extremely unlikely case a government isn’t able to meet their treasury commitments. Finally because it only has high quality securities of BBB and above which only further strengthens the investment. Since inception VIF has returned 4.52% p.a which it provides primarily through distributions which are paid quarterly. Given that most savings accounts in Australia are returning less than 2% at the moment, this is a very nice alternative.
Best Vanguard ETF for High Growth – VTS
Now we’re going to be moving on to the next category on this list which is the best Vanguard ETF for High Growth. One thing to keep in mind with high growth is that it should really be called “Highest expected growth over the long-term” and with that highest expected growth you will have to take on the highest risk. Which basically means unlike the Fixed Interest option VIF, which has extremely stable returns. A high-growth option may return 20% in a year but may also lose 10% the next year, so they aren’t for faint hearted and are for people with long investment periods (I’d say at least 15-20 years to ride out most market volatility). The ETF I chose has extremely low fees, in fact the lowest of any Vanguard ETF and probably one of the lowest of any ETF full stop and is 100% equities with no bonds, I’m sure you can guess it at this point.
The best Vanguard ETF for high growth is Vanguard US Total Market Shares Index ETF also known as VTS and it aims to provide investors with exposure across the entire US market. To start with this VTS has a low management fee of only 0.03% p.a, which given the fact it has over 3,531 holdings across the US market seems like pretty good value. The return has been fantastic, since inception VTS has returned 15.03% p.a, a small portion coming through dividends of usually around 2%, definitely fitting the bill of high growth.
One thing to keep in mind with VTS is that it is US domiciled vs AU domiciled like all the other Vanguard ETFs in this list. It just means that you will need to fill out a separate tax form come tax return time and isn’t as bad as it sounds, but definitely something to note.
Another thing to be aware of is that this ETF is also not currency hedged so you are exposed to currency fluctuations between the USD and AUD, and you are definitely over-exposed to the US market. This could be a good thing or a bad thing, and historically it’s been very good, but there’s no way for us to know for sure if this will continue in the future. Also if you’re looking at other high growth ETF alternatives available on the ASX check out my post on the top technology ETFs on the ASX.
Best Vanguard ETF for Property Exposure – VAP
Now with all of that high growth talk out of the way we’ve got the next category here which would be the best Vanguard ETF for property investing. I’ll let you guys in on a little secret, Vanguard actually only has one ETF for property exposure so this one is easy, it’s the Vanguard Australian Property Securities Index ETF also known as VAP.
This ETF like most Vanguard ETFs has a low management fee of 0.23% p.a and has had a 9.26% p.a return since inception. What is particularly nice is that a decent chunk of this has been paid out as distributions, around 5% and they usually have a portion that is franked, which means you will be able to get some tax credits at tax time.
The VAP ETF not to be confused with VAPE-ing (get your mind out of the gutter!) is all about providing a low-cost way to invest in property securities listed on the ASX. This ETF invests in multiple other listed Real Estate Investment Trusts (REITs) across various sectors including: retail, office, industrial and diversified. For a lot of investors this is a way to get exposure to the real-estate market in Australia without buying a home and getting a mortgage.
Best Vanguard ETF for Australian Shares – VAS
But if all you’re looking for is that local Australian market exposure for those sweet sweet franking credits, don’t worry Vanguard’s got you covered with what is actually the most popular ETF on the ASX, that’s the Vanguard Australian Shares Index Fund, ASX ticker VAS. So what do I need to tell you about the most popular ETF in Australia? It has extremely low management fees of 0.10% p.a and has returned 8.18% p.a since inception however as part of that return around 4% is a distribution that is usually around 70% franked. This means the true return is actually a bit higher depending as you will be able to reduce your taxable income by the franked portion of the distribution during tax time.
VAS tracks the top 300 companies listed in Australia on the ASX and is suitable for people who want both long-term capital growth but also have an insatiable need for dividends and franking credits. It’s a bit of everything which is what makes it so popular, with the only problem being that it does make you quite exposed to Australian market downturns, however Australia is one of the only countries that issue franking credits and as an Australian investing in Australian companies is the only way you will be able to access and enjoy the sweet franking credits.
Best Vanguard ETF for International Shares – VGS
Next we’re going to be moving on to a slightly different category and that’s the best Vanguard ETF for International Shares which at a time like this can be a pretty useful way to invest. Given that there is so much market volatility right now and it can be extremely hard to understand or comprehend which countries will perform better than others, that’s where having global exposure is something to really consider.
The best Vanguard ETF for international market exposure is the Vanguard MSCI Index International Shares ETF also known as VGS. To start with this VGS has a low management fee of only 0.18% p.a, which given the fact it has over 1500 holdings and provides global diversification is in my opinion a small price to pay. One thing you don’t get through this low fee is any currency hedging, which means you will be exposed to fluctuations in currency values between the AUD and countries that VGS has share holdings in. There’s actually a version of VGS that has hedging called VGAD which is otherwise identical to VGS, however you need to pay a management fee of 0.21% p.a, a premium of 0.03% p.a for hedging.
Why I think VGS edges out against some of the other options in the international/global space, especially for Australians is that it actually doesn’t include any Australian holdings. I personally think this is a good thing as I wouldn’t want all my eggs in one basket and if something terrible was to happen locally I wouldn’t want my investments to also be affected and vice versa if the rest of the world is going to shit and my investments are going down in value, at least I’ll have my job in Australia. I also like that it only has holdings in established companies in developed markets which have proven track records, with good exposure across all industries. Finally, it has had a good return providing 11.32% p.a since inception with a distribution yield of 2.30% p.a which is what I would say is a very satisfactory return for any ETF.
Best Vanguard ETF for Emerging Markets – VGE
However if you’re not interested in global exposure and just want to invest in speculative companies in emerging markets because you want some of that sweet potential growth then I got you covered with the best Vanguard ETF for shares in emerging markets, that is the Vanguard FTSE Emerging Market Shares ETF also known as VGE. VGE seeks to track the return of listed companies in emerging markets, however emerging markets are usually much more expensive to access and the management fee for this premium is 0.48% p.a.
The return since inception has been 5.97% p.a so definitely not the highest but probably to be expected since you’re investing in countries that are still emerging and by the time they are returning in the double digits, well they might not be an emerging market anymore. One thing to note is that VGE is very heavily weighted towards China, with over 40% of the allocation being in China with another 15% in Taiwan, and the rest of the allocation being spread between India and other emerging countries. Again this is suitable for someone who wants to allocate a portion of their portfolio to these emerging markets and is a bit of a hedge against the established developed western economies.
Best Vanguard ETF Overall – VDHG
And lastly now we’re finally here at the award designation for the best overall Vanguard ETF that I haven’t mentioned in any of the other categories. Now when you have to think of best overall it basically means that this ETF will not be the best in any one category but it’s kind of like a jack of all trades. For example it won’t be the highest growth but it also won’t be the most conservative.
It does probably come as no surprise though that the best overall Vanguard ETF is the Vanguard Diversified High Growth Index Fund also known as the holy grail of passive investing or VDHG. It has a management fee of 0.27% p.a and has provided a return since inception of 5.32% p.a, however this is a bit understated as the ETF version of this index was only released in the last couple of years, the Vanguard fund version which has been around for decades has return around 7-8% p.a during that time, and is a more true reflection of the long term return of VDHG. It’s mainly weighted towards growth assets at 90% equities and has a 10% weighting towards fixed interest allocations like bonds.
What is interesting is that VDHG is a collection of other Vanguard ETFs which makes it a 1 stop shop for getting diversified exposure demographically and across sectors. Weighting of VDHG below:
- Vanguard Australian Shares Index Fund (Wholesale) 35.9%
- Vanguard International Shares Index Fund (Wholesale) 26.5%
- Vanguard International Shares Index Fund (Hedged) – AUD Class (Wholesale) 16.1%
- Vanguard Global Aggregate Bond Index Fund (Hedged) 6.9%
- Vanguard International Small Companies Index Fund (Wholesale) 6.6%
- Vanguard Emerging Markets Shares Index Fund (Wholesale) 5.1%
- Vanguard Australian Fixed Interest Index Fund (Wholesale) 2.9%
Why is VDHG so loved and so recommended? Well simply because it’s suitable for the vast majority of investors, it’s almost never going to be a bad suggestion, from someone that’s just starting out investing all the way to experienced investors, VDHG remains a decent option.
If you want to review some alternatives to VDHG, this post outlines 8 single ETF alternatives to VDHG available on the ASX for varying levels of risk tolerance.
So there you go those are my top 7 Vanguard ETFs in each of their categories. I’m sure these will be eventually changing over time but as of right now these are my thoughts. Which begs the question what type of ETF will be the next Vanguard releases and what do you hope it is? Personally I hope they bring out a technology focused ETF and I think it’s been a long time coming but let me know your thoughts in the comments.