Fees can significantly impact investment returns over the long run, which is why investors need to be aware of what they are actually paying when professionals manage their assets. Vanguard index funds are synonymous with low cost index funds and are designed as a hands off passive index fund to track the market rather than beat it. Vanguard index funds are some of the most popular exchange traded funds on the ASX.
We have selected Top 10 funds that are of most interest to investors. The key selection criteria are asset class exposure and liquidity, with some of these being the most liquid ETFs on the ASX.
Indexed funds are designed to track the performance of the underlying index, the investment manager does not pick or winners but aims to mimic the return of the underlying benchmark and limit the tracking error. Note for these options there are additional investment options provided by Vanguard, such as wholesale and unlisted versions.
The suite of funds can be separated into 3 distinct categories, Australian, US, and International Equities and Fixed Income index funds.
Vanguard Index Fund Returns
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Vanguard Australia Index Funds
Vanguard Australian Shares Index Fund (ASX VAS)
This is a traditional passive index fund that tracks the S&P/ASX 300 Index. The ASX 300 index captures the largest 300 companies listed on the Australia Stock Exchange and is designed as the default market index for those that want exposure to large cap equities.
Investment advisers would usually make this the largest index fund exposure in the portfolio due to its diversified nature. However it is important to note while it is diversified with 300 positions, mining companies and financials (banks) still make up a large portion of the index.
Vanguard Australian Shares High Yield ETF (ASX VHY)
ASX VHY is a high dividend ETF and tracks the FTSE ASFA Australia High Dividend Yield Index. The fund is focused on companies listed on the ASX, which has a higher than average dividend yield relative to the rest of the market. Interestingly REITs are excluded from the fund.
Vanguard Australian Property Securities Index Fund (ASX VAP)
ASX VAP is designed for investors looking for direct exposure to a portfolio of listed property trusts. The underlying benchmark is the S&P/ASX 300 A-REIT Index which comprises all of the real estate investment trusts included in the ASX 300 index.
Vanguard International Index Funds
Vanguard MSCI Index International Shares ETF (ASX VGS)
One of the largest international ETFs, excluding Australian companies. It aims to provide a globally diversified equity exposure with more than 1,500 companies in developed countries. The fund’s investments will be exposed to changes to the Australian dollar as the FX risk is unhedged. ASX VGAD is the hedged version designed for direct equity exposure without the exchange rate risk overlay.
Vanguard FTSE Emerging Markets Shares ETF (ASX VGE)
ASX VGE is an Emerging Market ETF in which the investment criteria is investing across multiple emerging market countries with over 4,000 positions in the fund.
Vanguard US Total Market Shares Index ETF (ASX VTS)
The fund is designed to track the performance of the US stock market. The underlying benchmark has a strong correlation to the Standard and Poor’s 500 index.
Vanguard All-World ex US Shares Index ETF (ASX VEU)
Global ETF variation which invests across developed and emerging market excluding the US equities.
Vanguard Bond Index Funds
Vanguard Australian Fixed Interest Index Fund (ASX VAF)
VAF is a fixed income fund tracking the Bloomberg Australia Bond Composite Index, which comprises the Australian government bonds (state and federal issuers). It is designed for investors that are looking for a pure low cost government fixed income ETF.
Vanguard Australian Government Bond Index ETF (ASX VGB)
ASX VAF vs ASX VGB – the main difference between VAF and VGB is that VAF invests in BBB- or investment grade onwards while VGB only focuses on AA or higher. VGB returns are expected to be lower, but so is the risk.
It is important to note that as bond prices move inverse to interest rate moves when rates eventually rise, higher rates would lead to losses in the bond’s capital value. The longer the bond duration (term of the bond), the more sensitive the bond is to rise in rates.