There are 6 Vanguard ETFs that receive a top Medallist rating of Gold from our manager research analysts. These ETFs can help investors get exposure to key assets classes as part of a diversified portfolio.

Vanguard Australian Fixed Interest ETF (ASX: VAF)

Vanguard Australian Fixed Income is an outstanding choice that provides diversified Australian bond exposure at a competitive price. The underlying Bloomberg AusBond Composite 0+ Yr Index is representative of the overall opportunity set, and the team at Vanguard have reliably replicated its characteristics with a narrow tracking error.

Historically, the fund’s returns have had increased sensitivity to interest-rate changes owing to the portfolio’s higher duration relative to its average Morningstar Category peer. The higher duration can be attributed to the substantial allocation to long-term government and semi-government bonds; they accounted for around 90% of the total exposure as of Aug. 31, 2024.

The small remainder of the portfolio mostly consists of corporate bonds, so credit risk has remained modest. Active managers possess the flexibility to adjust to interest-rate and yield-curve changes and corporate spread dynamics, whereas passive investments are bound to the benchmark with minimal control over their risk profiles. These features theoretically give active managers an advantage, although the added efficiency of government bond markets is a hurdle. That said, and despite favorable recent results owing to rising interest rates and more volatile bond markets from late 2022 into the first half of 2024, few active peers have been able to beat the benchmark consistently.

We have conviction in Vanguard’s ability to outperform the category average over longer time horizons. Considering its investment merits and cost efficiency, this strategy is one of our top picks within the Australia fixed-income space

Vanguard Australian Property Secs ETF

Vanguard Australian Properties Securities (ASX:VAP) is an excellent passive vehicle to gain access to the domestic listed property sector. The strategy maintains its top ranking in the Australia real estate Morningstar Category.

This strategy tracks the S&P/ASX 300 A-REIT Index, reflecting the narrow Australian REIT market with less than 50 listings on the Australian Securities Exchange as of September 2024. Given the limited playing field, few active strategies are able to differentiate themselves and outperform the benchmark, thereby making the appeal of passive strategies strong in this market segment. Of the listed A-REIT universe, the index consists of 31 constituents, with a market-cap coverage of over 95% as of September 2024.

The index provides a reasonable subsector diversification relative to other sector indexes, but it does carry a fair degree of stock-level concentration. As of September 2024, the top 10 holdings accounted for more than 80% of the portfolio assets. Given the portfolio concentration, a corporate action or firm exiting the underlying index could cause notable portfolio shifts. The strategy’s passive nature does not explicitly offer any downside protection in such events. That said, even active strategies are unable to offset the concentration risk meaningfully as they do not stray far from the index, leading to narrow levels of return dispersion within the category. This further boosts the appeal of passive strategies.

The strategy’s low management fee makes the overall holding cost of the strategy very attractive. Its scale is advantageous for trading efficiencies and cash flow management. The strategy continues to earn our highest conviction based on the merits of the index with Vanguard’s legacy and scale.

Vanguard Etclly Cons Intl Shrs ETF

Vanguard Ethically Conscious International Shares (ASX:VESG) strategy is an attractive opportunity for investors seeking exposure to global equity markets under an environmental, social, and governance lens. The strategy is well-diversified, despite ESG screens, and well-managed, which keeps costs low. These factors contribute to our continued positive view of the strategy.

The strategy tracks the FTSE Developed ex Australia Choice Index with net dividends reinvested with vehicles available in both AUD-hedged and unhedged formats. The index is constructed by applying exclusionary screens to its parent index. Namely, companies associated with controversial conduct as outlined by the United Nations Global Compact or failing to meet diversity criteria are excluded from the parent index, the FTSE Developed ex Australia Index.

Additionally, companies with revenue exposure to nonrenewable energy, vice products, and weapons are filtered from this fund’s index. Overall, this process removes around 400 names from the index of 1,900. Despite these exclusions, the fund still broadly resembles its parent index, with sector skews in technology and healthcare.

Vanguard’s passive equity team operates within a highly integrated, global approach, bringing together regional expertise, role flexibility, and consistency through standardized processes and systems. All in all, this strategy is an excellent choice for investors seeking diverse global equity exposure with an ESG focus.

Vanguard MSCI Intl ETF

Vanguard’s International Shares (ASX:VGS) strategy provides investors efficient exposure to global equity markets. The strategy and its Australian-dollar-hedged version mirror the MSCI World ex Australia Index and AUD hedged index respectively, net dividend reinvested. The index continues to be a challenging benchmark for active managers to overcome, reconfirming our conviction in the strategy.

The underlying index is appealing, providing investors with exposure to approximately 1,350 constituents across 22 developed markets. Like other diversified global indexes, the index has a significant exposure to US-domiciled holdings, which constituted 75% of the index as of January 2025.

However, the multinational nature of revenue earnings among the holdings reduces our concern for country concentration risk. Against the depreciating Australian dollar over calendar year 2024, the hedged share class’ performance was notably weaker than that of the unhedged share class, returning 20.57% versus 31.14%, respectively.

Overall, the strategy stands to be among one of the best choices for global market exposure. The efficacy of passive management in the US-dominated global markets, its cost-efficient availability, and broad diversification continue to be key drivers that earn our conviction.

Vanguard MSCI International SC ETF

Vanguard’s MSCI International Small Companies Index (ASX:VISM) remains a competitive offering despite idiosyncratic risks, which may foster inefficiencies conducive to active management. Differences in management fees and category peer groups across the strategy’s share classes lead to differing medalist outcomes.

The strategy tracks the MSCI World ex Australia Small Cap Index, with net dividends reinvested with vehicles available in both Australian-dollar-hedged and unhedged formats. The underlying index captures most of the opportunity set available for active managers, including about 3,800 constituents. The index has a country skew to the United States representing approximately 65% as of February 2025; however, this is a common sight in global indexes. The index’s exposure across industries is well diversified, with no sector representing more than 20%, the largest being industrials at 19% as of February 2025.

Typically, the global small-cap market is characterized by a broad and heterogeneous opportunity set, giving rise to inefficiencies that lead to higher levels of dispersion in returns. These attributes theoretically make the segment fertile ground for an active approach to generate alpha.

However, reality has fallen short over longer periods of time. The trailing 15-year returns to February 2025 at 12.0% edges ahead of its category average peer at 10.7% and the comparable equity world small-cap category benchmark of 11.9%. Vanguard adds incremental value through its securities lending practices, which target high-margin and low-volume assets, typically small-cap securities.

The Vanguard MSCI International Small Companies Index strategy remains a standout passive option in the global small-cap universe.

Vanguard US Total Market Shares ETF

Vanguard Total Stock Market (ASX:VTS) funds offer highly efficient, well-diversified exposure to the entire US stock market while charging rock-bottom fees—a recipe for success over the long run.

The fund tracks the CRSP US Total Market Index, which represents nearly the entire investable US stock market. The index weights constituents by market cap after applying liquidity and investability screens to ensure the index is easier to track.

Market-cap weighting forms the bedrock of this strategy. It harnesses the market’s collective wisdom on each holding’s relative value with the added benefit of low turnover and trading costs. It’s a sensible approach because the market tends to do a good job pricing the large-cap stocks that make up the bulk of this portfolio. Large-cap stocks attract widespread investor attention, so prices quickly reflect new information.

Total-market funds mitigate transaction costs because they don’t target specific segments of the market and aren’t forced to buy or sell stocks when they enter or exit a market segment. Still, a small amount of turnover can occur at the lower rungs of the portfolio. The index implements buffer rules around its lower market-cap bound to limit unnecessary turnover. That’s a key feature since dealing in thinly traded small and micro-caps can increase transaction costs. The index further reduces trading costs by rebalancing over several days to limit market impact costs.

The index includes small- and micro-cap stocks, which improve the end portfolio’s diversification and can provide a modest performance edge when small caps rally, as they did in the fourth quarter of 2020. They tend to be more volatile than large-cap stocks but have minimal impact at less than 10% of the portfolio.

Market-cap weighting may expose the strategy to stock- or sector-level concentration risk when a few richly valued companies or sectors power most of the market gains. However, this strategy is less concentrated than its average peer in the US large-blend Morningstar Category.

At year-end 2024, the fund held around 32% of its assets in the top 10 stocks compared with 50% for its average peer. No sector deviated more than 2 percentage points compared with peers. The funds’ heavy allocations to the technology sector could present some risk, but that is not a fault in the strategy’s design. The CRSP US Total Market Index simply reflects the market’s composition. In the long run, its broad diversification, low turnover, and low fee outweigh periodic concentration risks.

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