Is VSO a good ETF?
VSO is the Vanguard MSCI Australian Small Companies Index ETF from Vanguard. It tracks the MSCI Australian Shares Small Cap Index. We classify it under AU, Small-Cap, and Market-Cap. With about $1.14 billion in assets it is a large, highly liquid fund. Listed on the ASX since 2011-05-23 (over 15 years ago).
On a total-return basis, VSO has delivered 8.35% a year over 10 years (ranked 60th of 108 ETFs we track), 5.5% a year over 5 years (ranked 112th of 188 ETFs we track), 9.29% a year over 3 years (ranked 127th of 226 ETFs we track), and 7.01% a year over 1 year (ranked 154th of 308 ETFs we track).
The management fee of 0.3% is reasonable. That's cheaper than the typical 0.32% for similar ETFs. If cost is your priority, VAS (0.07%) and EX20 (0.25%) cover similar ground for less. It pays a healthy 4.92% yield, attractive if you want regular income. Bear in mind distributions are taxed each year at your marginal rate, so a high yield is less tax-efficient for higher earners and during the accumulation phase, though 65% franking softens the blow for Australian residents.
Over the past 10 years its volatility has been elevated (annualised standard deviation around 16.61%), meaning noticeably larger swings than the broad market. Its 10-year Sharpe ratio of 0.44 is weak — that's the return it has earned per unit of risk taken (higher is better).
Portfolio turnover is low at about 18% a year — it trades only a small slice of its holdings each year, so trading costs and tax on realised gains stay modest — typical of a passive index strategy.
Strengths
- Low-cost: a 0.3% management fee keeps more of the return in your pocket.
- Pays a useful 4.92% income yield.
Things to watch
- Cheaper alternatives exist: VAS and EX20.
- Weak risk-adjusted returns (10-year Sharpe ratio 0.44).
Good to know
- Distributions are 65% franked, a tax bonus for Australian residents.
- Australian focus means franked dividends and no currency risk, but heavy concentration in banks and miners.
What VSO's categories mean for you
How each category this ETF belongs to tends to behave across market cycles.
Australian shares. Home-market familiarity, fully franked dividends and no currency risk for local investors — but very concentrated in banks and miners, which dominate the index.
- Market regime
- Sensitive to commodity prices, Chinese demand and domestic interest rates. Generous income, but narrow sector diversification.
- In a portfolio
- A natural core for Australian investors thanks to franking, but should be paired with global exposure so you aren't over-reliant on a handful of banks and resource giants.
Smaller companies, which historically carry a long-run 'size premium' alongside greater volatility and lower liquidity.
- Market regime
- Tends to lead early in economic recoveries and falls hardest in recessions and credit crunches, as smaller firms are more economically sensitive.
- In a portfolio
- A long-horizon satellite tilt for extra growth — expect a bumpier ride than large-cap and broad-market funds.
Holdings are weighted by company size, so the largest companies carry the most weight. These funds are cheap, tax-efficient and self-rebalancing.
- Market regime
- Works in almost any regime as a low-maintenance core. The trade-off is concentration — you automatically own more of whatever has already become expensive at the top of a bull market.
- In a portfolio
- The classic buy-and-hold core of most portfolios. Well suited to long-term, hands-off investing.
General information only, generated from the fund's published data — not personal financial advice. Past performance is not a reliable indicator of future returns. Consider your own circumstances or seek licensed advice before investing.