Zenith has initiated coverage on three Vanguard ETF’s with the following ratings issued:
- Vanguard® Australian Government Bond ETF (ASX:VGB) – RECOMMENDED
- Vanguard® Australian Shares High Yield ETF (ASX:VHY) – RECOMMENDED
- Vanguard® MSCI Australian Large Companies Index ETF (ASX:VLC) – RECOMMENDED
The Vanguard® ETF Funds (the Funds) are a series of three ETFs operated by Vanguard Investments Australia Ltd (Vanguard). The Fund’s objectives are to track their respective defined benchmark indices and deliver index like returns while minimising transaction costs and tracking error. Indexation strategies are altered to suit the respective index being tracked however none rely on full index replication.
Vanguard® Australian Government Bond ETF
VGB offers a diversified and transparent exposure to a pool of Government and Semi-Government bonds and is designed to match the performance of the UBS Government Bond Index before fees and expenses. The UBS Government Bond Index is a value-weighted index of approximately 80 bonds issued by Australian Commonwealth and State Government authorities.
Vanguard® Australian Shares High Yield ETF
VHY seeks to track the return of the FTSE ASFA Australia High Dividend Yield Index (FTSE HY). Up to May 2011 the Fund used the S&P/ASX 200 ex-AREIT index as a base, then filtered stocks based on forecast dividend yields using median broker forecasts. The FTSE ASFA Australia High Dividend Yield Index consists of approximately 70 companies with higher forecast dividends relative to other companies listed on the ASX.
Vanguard® MSCI Australian Large Companies Index ETF
VLC offers a diversified and highly transparent exposure to Australian large cap companies and is designed to match the total return of the MSCI Australian Shares Large Cap Index before taking into account fund fees and expenses. The MSCI Australian Shares Large Cap Index includes the largest Australian companies by market capitalisation and targets coverage of around 70% of free float-adjusted market capitalisation of the Australian share market.
Zenith’s View
Zenith continues to have solid conviction in Vanguard’s global ETF platform. As a global ETF manager, the ability of Vanguard to draw on the knowledge and expertise of their global capabilities is a key differentiator for the firm in designing and managing ETFs in the Australian marketplace.
Management fees for these ETF’s are highly competitive in the broader ETF universe and their respective market segments. Market bid/ask spreads for each ETF are also fairly tight which we see as a significant advantage as this aids quality of trade execution.
Zenith views these ETFs as being generally suited to investors seeking low cost access to index returns with high transparency and low friction execution.
