Top 10 Vanguard Australia ETFs

Last Updated on 3 March 2024 by Ryan Oldnall

Vanguard is an absolute powerhouse in the investment world, with over $10+ trillion worth of assets under management worldwide and over $104 billion in Australia [1] alone; they have become a household name for investors.

Many investors familiar with ETFs will know Vanguard Australian Shares Index ETF, or its more common name VAS. VAS currently holds the title of Australia’s most popular ETF with an estimated $13.2 billion invested in it [2].

But how does VAS stack up performance-wise against some of the lesser-known or heard-about Vanguard products?

Like all my articles, I will be reviewing the ASX November 2023 performance data [2], showing you the top-performing Vanguard products over the past 5 years and 3 years and those with the highest distribution yields.

It is important to note that for the purpose of this article, I am only reviewing the performance of those Vanguard ETFs domiciled in Australia. So the likes of VTS and VOO will not be included.

Best Performing Vanguard ETFs In The Past 5 Years

Top 10 Vanguard Australia ETFs - Vanguard 5 Year performance

The best-performing Vanguard ETF in the past 5 years has been Vanguard Ethically Conscious International Shares Index ETF, VESG. This may be surprising for many, with ESG-focused ETFs typically having a reputation for underperforming the market in comparison to non-ESG-focused ETFs.

VESG returned a 5-year average of 12.55%, which is a solid return on investment considering the rollercoaster period of the past 5 years. This 12.55% is only slightly better than the hugely popular Vanguard MSCI Index International Shares ETF, VGS.

Vanguard’s VGS, known for its hugely diversified international portfolio of 1500 holdings in 23 different countries [3]. I have written extensively about VGS and its stellar performances over time. VGS over the past 5 years has returned on average 12.23%, 0.32% less than VESG.

Vanguard Australian Shares High Yield ETF, VHY, takes third place. The high-yielding ETF known for its dividend/distribution paying potential and Australian franking credits has returned 12.22%.

Vanguard MSCI Australian Large Companies Index ETF, VLC, is a lesser-known ETF. VLC returned 11.89% and tracks Australian large-cap companies, think your BHPs, CBAs, CSLs, etc. VLC is highly concentrated in this area with around 20 holdings overall.

Next is Vanguard Australian Shares Index ETF, VAS. As mentioned, Australia’s most popular ETF, investing in the ASX 300 (300 largest listed companies in Australia) has returned on average 10.10%.

Vanguard Diversified High Growth Index ETF, VDHG is known for being a one-stop shop when it comes to ETFs. With 90% of its allocation in growth assets and a 10% defensive position, it is a favorite among set-and-forget investors. VDHG returned an average of 9.00%. I have also reviewed VDHG against another rival, DHHF, in my article DHHF vs VDHG.

Vanguard MSCI Index International Shs (Hedged) ETF, VGAD, which tracks the return of the MSCI World ex-Australia, returned 8.94% on average. Like VGS, it has nearly 1500 holdings but is hedged.

According to Vanguard, VGAD is hedged to Australian dollars, so the return (income and capital appreciation) of the ETF is relatively unaffected by currency fluctuations [4].

Vanguard MSCI Australian Small Companies Index ETF, VSO is an ETF focusing on small-cap companies. This is essentially the opposite of VLC and is more susceptible to performance fluctuations due to the nature of smaller-listed companies. VSO has returned a 5-year average of 8.36%.

Vanguard FTSE Europe Shares ETF, VEQ has returned 8.16% in the past 5 years. The VEQ ETF tracks the FTSE Developed Europe All Cap Index and invests in over 1300 companies and names such as Nestle, Shell, AstraZeneca, and LVMH.

Lastly, to round out the top 10 Vanguard ASX-listed ETFs is Vanguard MSCI International Small Companies Index ETF (VISM), VISM. VISM is a popular option for those wanting to invest in internal small-cap companies and has a 5-year average return of 7.77%.

Much like VSO, VISM is susceptible to performance fluctuations due to the nature of small-cap companies and has approximately 4000 holdings [6].

Best Performing Vanguard ETFs In The Past 3 Years

Much of the same names make up the top-performing ETFs in the past 3 years. This is largely due to the robustness of these ETFs and underlying holdings. Having invested in established economies such as Australia, the US, and Europe, the performance of these ETFs has been solid.

Top 10 Vanguard Australia ETFs - Vanguard 3 Year performance

The top-performing ETF over the past 3 years has been VHY with a return of 13.09%. This was closely followed by VLC with an 11.82% return, representing a solid performance by large-cap Australian companies.

VGS returned 10.90% in the past 3 years, with VESG being similar; both investing globally returned 9.74%. Interestingly, both ETFs have performed better over the longer term of 5 years.

VAS and VEQ returned 8.32% and 8.23%, respectively, over the past 3 years. VAS, in particular, has had a rough time, especially in 2022 and much of 2023. As this is November data, the late December rally at the time of writing is not reflected in VAS’ average performance.

VGAD and VDHG both returned 7.04% and 6.77%, respectively. VGAD, essentially being a hedged version of VGS, returned 3.86% less than its rival. With the increase of VGS in comparison to VGAD, this is likely due to a depreciation of the Australian dollar relative to the currencies of the countries in the MSCI World Index.

Lastly, VISM and VETH round out the bottom 2 performers over 3 years. VISM returned 5.69% over 3 years, while Vanguard Ethically Conscious Australian Shares ETF, VETH, returned 5.64%.

VETH has an ESG lens, investing in ethically conscious Australian companies such as CBA, Westpac, and Fortescue Ltd [7].

Best Distribution Yielding Vanguard ETFs

The percentage of dividend/distribution income generated by shares, calculated in relation to the market price of those shares. In the case of an ETF, the yield represents the weighted average equity yield of the stocks within its portfolio.

When it comes to ETFs, not all are created equal when it comes to paying a dividend or for ETF distributions. Many Australian investors hold ETFs for the distribution-yielding capacity and, as such, are not focused on the overall growth of the ETF. We will review the top 10 Vanguard historical distribution yield performances.

Top 10 Vanguard Australia ETFs - Vanguard Yield

VHY was expected to return a 5.16% yield. The ETF is specifically designed to hold high-paying ASX companies such as BHP and Telstra. VLC had a similar yield of 5.14%. Like VHY, it holds many of the same large dividend ASX companies, which themselves pay dividends to their shareholders.

VSO returned a distribution yield of 4.17%, which was followed by Vanguard Australian Property Securities Index ETF, VAP, with 4.00%. VAP is very different from all the previously mentioned ETFs in this article.

VAP tracks S&P/ASX 300 A-REIT Index. REITs, or real estate investment trusts, are listed investment vehicles that provide exposure to property assets. This can include commercial properties such as shopping malls, office buildings, and industrial buildings. VAP is invested in up to 33 REITs at present, with approximately $2.5 billion invested in it [8].

VISM and VETH have a distribution yield of 3.96% and 3.72%, respectively. Lastly, VDHG, VBLD, and VEQ returned the lowest yields at 2.81%, 2.62%, and 2.61%, respectively. Vanguard Global Infrastructure Index ETF, VBLD, tracks the FTSE Developed Core Infrastructure Index.

The VBLD ETF allocates funds to infrastructure securities listed in developed nations, providing investors with diversified exposure to various infrastructure sectors such as transportation, energy, and telecommunications [9].

Summary

The suite of Vanguard ETF products makes it difficult for investors to choose the right one for them and their goals. It is clear that the unhedged international ETF products have had robust performances both over the 3 and 5-year periods.

Those ETFs which have concentrated on the top-performing Aussie companies have also fared well. However, having such a concentration is not without risks. Many investors will have ’tilts’ to their portfolio. This means that they will have a certain percentage allocated to ETFs which may give them an edge in the future.

Such tilts may be the use of VLC, which invests in the top Australian-listed companies. Other tilts or smaller allocations may come in the form of VISM, VSO, and VAP. These ETFs are unlikely to make up the ‘core’ of an investor’s portfolio.

This is largely due to their underlying holdings which may be more volatile in nature or not offer enough diversification should a particular market experience sustained downturns.

VAS, for instance, is considered a core investment for many investors. This is largely due to investing in over 300 companies within Australia. This is something I do a deep dive into in my VAS ETF Review.

Like all investment choices, the ETF you choose will come down to your own circumstances, life stage, and future goals. Hopefully, this article has opened your eyes up to the various options that exist in the world of ETFs and Vanguard specifically.

This article does not serve as an endorsement or recommendation for products mentioned in the article. The information presented here is based on referenced sources and is accurate as of the date of 30 December 2023. Please note that these articles are written sometime before their publication date.

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