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ASX 200 | A B C D E F G H I J L M N O P Q R S T U V W X
Motley Fool Australia » How to invest » The 3 best ETFs for passive investing
Sebastian Bowen | September 18, 2020 10:33am | More on: VAS VEU VTS ASX 200
A few days ago, I penned a piece on why a passive investing strategy, using only ASX index exchange-traded funds (ETFs), perfectly fits many investors. I also outlined how this strategy works and why it’s a good fit for anyone unable or unwilling to pick their own individual shares. Today, I thought I’d back this up with a discussion about the best ETFs for such a strategy.
So here are 3 ASX ETFs that I think would work nicely. I’ve considered 2 factors for these ETFs – the fees they charge and the balance and diversification they can bring to a portfolio. Let’s get started!
Our first ETF is this comprehensive fund from Vanguard. VAS covers the 300 largest companies in Australia, which is another 100 on top of your more conventional S&P/ASX 200 Index (ASX: XJO) fund. I think the ASX largest holdings such as Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and BHP Group Ltd (ASX: BHP) are a little tired as companies and are unlikely (at least in my opinion) to deliver significant returns over the next decade or so. That’s why I like the fact that VAS captures a large portion of the small-cap end 0f the market.
VAS is an ETF that represents a ‘slice of Australia’, as Warren Buffett might say. The ASX has been a great performer over the past 120 years or so, and thus, I think VAS is a great candidate for a passive investing strategy. It charges a competitive fee of 0.1% per annum (or $1 for every $1,000 invested every year).
This ETF is also from Vanguard, but instead of tracking Aussie shares like CBA and Woolworths Group Ltd (ASX: WOW), it instead tracks all of the shares currently listed in the share markets of the United States. I prefer a comprehensive ETF like this one over the more popular S&P 500 funds that are out there, for similar reasons to VAS. VTS holds 3,525 different shares within it, which includes both the smaller end of the market that the S&P 500 doesn’t track, as well as the larger companies that don’t fit the S&P 500’s listing criteria (such as the famous example of electric car maker Tesla Inc (NASDAQ: TSLA)).
The United States is one of the best markets to passively invest in, in my view. You just can’t go wrong with companies like Apple Inc (NASDAQ: AAPL), Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) and Amazon.com, Inc (NASDAQ: AMZN).
I also like this ETF because of its a stupidly low management fee of just 0.03% per annum (or $3 for every $10,000 invested every year).
Our final ETF is an interesting one. VEU holds a massive basket of shares (more than 3,400) that are listed right around the world, with the exception of the US. That’s companies from China, India, Europe, the United Kingdom and Canada, among many others (even Australia). In this way, I think this ETF is a great way to get some exposure to the companies outside the popular US markets. Some of the top holdings in this ETF include Chinese e-commerce giants Alibaba Group and Tencent Holdings, Swiss food manufacturer Nestle, Japanese auto giant Toyota, and British pharmaceutical giant AstraZeneca.
VEU charges a management fee of 0.08% per annum (or $8 for every $10,000 invested every year).
Here we have the 3 best ASX ETFs for a passive investing strategy available, in my view. You could happily and successfully use any one of these ETFs, or else a combination, for long-term returns and diversified exposure.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of Alphabet (A shares) and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Amazon, Apple, and Tesla and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia owns shares of Woolworths Limited. The Motley Fool Australia has recommended Alphabet (A shares), Amazon, and Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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