Vanguard Australian Shares ETF (ASX: VAS) is an appealing and efficient alternative for investors seeking exposure to the broader Australian equities market. The strategy’s cost-value balance, in particular, is unrivalled. At 0.10 percent per year, it is one of the most affordable exchange-traded funds that provide diversified domestic equities exposure. Vanguard Australian Shares ETF seeks to provide broad Australian share market exposure in a passively managed, tax-efficient vehicle. To achieve that goal, the strategy uses an index-replication approach to track the S&P/ASX 300 Accumulation Index. The fund’s large size brings economies of scale to the effort and allows Vanguard to invest in virtually all the securities that make up the index. Security weightings are approximately the same proportion as the index’s weightings. However, the portfolio will deviate from the index when the managers believe that such deviations are necessary to minimize transaction costs. Such strategies have helped keep annual tracking error as low as 0.20% and annual turnover below 2%. So, while the passive approach means the strategy is unlikely to depart far from the index, it offers a low-cost and reliable way to get Australian share market exposure.

Vanguard Australian Shares ETF aims to track the S&P/ASX 300 Accumulation Index, a free-float-adjusted, market-cap-weighted index. It is one of Australia’s best-known stock market benchmarks and covers about 85% of Australian equity market capitalization. While the S&P/ASX 300 Index is dominated by giant- and large-cap companies, the fund has exposure to small caps, with an approximate weighting of 7.5%. The portfolio is top-heavy, with about 29% of the index in the top five companies. The concentration in banks skews the fund’s sector weightings, with financial services forming around 26% of the portfolio. The basic-materials sector also looms large, but its dominance declined as the mining boom waned. Basic materials peaked around 31% of the portfolio in 2008 but shrank to around 18% by March 2020, while energy fell from around 8% to around 4% during the same period. Some sectors that are prominent on the global stage are underrepresented in the Australian market. Technology and to a lesser extent healthcare (thanks to the share price rise of CSL) combined make up around 17% of the index–a lower proportion than equivalent US and European indexes.

Company’s Performance outlook Vanguard Australian Shares ETF (ASX: VAS) has rewarded investors well over time ahead of an average category peer. Given its exposure to small caps, which have underperformed large caps in the last 10 years, the strategy has modestly underperformed category index, S&P ASX 200 Index. On the other hand, the category relative outperformance has been led by the strategy’s higher market-cap exposure than an average category peer. More recently, when COVID-19 wrecked the market in the first quarter of 2020, Vanguard ceded 20.3% in line with the broader market sell-off and more than the category average. But the rebound was equally strong with 34.4% that ended the year for the strategy at just 20 basis points lower than its peers. In terms of risk-adjusted returns, Vanguard has delivered middling performance over long haul.

(Source: Morningstar)

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