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The Federal Budget has dropped and Australia is headed into deep debt thanks to strong deficit spending. That could be good news for infrastructure groups and, as such, I’ve got my eye on the Transurban Group (ASX: TCL) share price.

Why is the Federal Budget good for the Transurban share price?

There was plenty to unpack from last night’s Federal Budget announcement by Treasurer Josh Frydenberg.

The government is set to push Australia into $1 trillion of debt but all that money has to go somewhere. $10 billion of that is earmarked for infrastructure to go with the government’s existing $100 billion plans.

That could mean major infrastructure players like Transurban could benefit. I think the Transurban share price will be one to watch when the market opens today.

More infrastructure spending could mean more subsidies and project support for major employers and spenders like Transurban.

It’s not just the Aussie toll road operator that I’m watching. I think other infrastructure shares like Lendlease Group (ASX: LLC) are worth a look.

The Federal Budget showed the Coalition is serious about spending Australia out of a recession. I was already quietly bullish on the Transurban share price but I think this helps cement that even further.

High-quality assets are hard to come by, especially at scale. That means major operators like Lendlease and Transurban could benefit from a cash splash.

When times are tough, it’s good to have a strong balance sheet to fall back on. Even if share prices fall, I like the comfort of hard assets compared to growth that supports valuations for the likes of Afterpay Ltd (ASX: APT).

Foolish takeaway

There’s plenty to take away from last night’s Federal Budget. I think the increased $10 billion for infrastructure spending is good news for infrastructure players in general.

The Transurban share price is down 4.2% this year but could be worth watching in 2021.

More reading

• Ignore the noise and focus on these ASX shares instead
• 5 things to watch on the ASX 200 next week
• Top ASX Stock Picks for October 2020
• How to make money by investing in ASX 200 shares
• ASX 200 Weekly Wrap: Bank shares push ASX 200 higher

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO and Transurban Group. 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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The $100 billion federal budget boost to businesses will give our economy the kickstart it needs to get to COVID normal. But it isn’t all good news for ASX investors.

Don’t get me wrong. I think there are few areas wanting in Treasurer Josh Frydenberg’s first budget – and he’s gone big for his first rodeo.

There are incentives for businesses to hire workers under 35, invest in plant and equipment for instant write-offs and bring forward losses till FY22.

Federal budget favours ASX growth over income stocks

The big budget is aimed at creating 950,000 jobs over the next four years, and I don’t have a reason to think this won’t work.

That can only be good news for our economy and that can only translate into higher profits for ASX stocks. But before you throw your hands up the air in celebration, this budget could be bad news for income investors hunting for dividends.

How ASX dividends could be affected by federal budget

You see, the enticing incentives are aimed to get companies to invest and hire. That means less retained earning to be handed back as distributions to shareholders.

Also, these companies will be paying less tax till at least FY22 thanks to generous Uncle Frydenberg. Unless the ASX stock holds a large bank of franking credits, this could limit their ability to hand back the generous tax credit to income investors.

The other point to note is that companies that generate revenue of over $5 billion are largely excluded from many of the tax and investment incentives. So this could push income investors into a concentrated area at the top the S&P/ASX 200 Index (Index:^AXJO).

But make no mistake. The budget unintentionally favours growth stocks over income.

This sector is a big winner from the FY21 budget

On that note, there are a number of stocks that are well placed to benefit from the government’s cash splash.

One area that the federal government is targeting is infrastructure construction. Frydenberg unveiled $14 billion in new and accelerated projects nationwide, a $2 billion road safety upgrade an $1 billion for local councils to improve footpaths and local roads.

There is also $2 billion set aside for water infrastructure to win over our farmers who have been doing it tough with bushfires and drought.

ASX stocks that will benefit

I believe heavy equipment rental group Seven Group Holdings Ltd (ASX: SVW) is well placed to benefit from this 10-year pipeline of projects.

Another that could do quite well is the Downer EDI Limited (ASX: DOW) share price due to its exposure to civil engineering work.

Building supplies groups like the Boral Limited (ASX: BLD) share price and Adbri Ltd (ASX: ABC) are another group of likely beneficiaries.

Demand for building supplies will also be bolstered by the extra 10,000 places for new home buyers under the government’s 5% deposit scheme.

More reading

• Federal Budget: What it means for the CSL (ASX:CSL) share price
• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 rises on mixed day, big gold merger
• Why the Coles Group (ASX:COL) share price just got upgraded to “buy”
• What investors learnt from the RBA’s rate decision today

Motley Fool contributor Brendon Lau owns shares of Seven Group Holdings Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. 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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The Altium Limited (ASX: ALU) share price has edged 3.1% higher this year but it could start to feel the heat.

Why has the Altium share price climbed in 2020?

US and Australian tech shares like Altium have been on fire in 2020. While the coronavirus pandemic has hit many sectors hard, technology is not one of them.

Altium is an electronic printed circuit board (PCB) software design company. Despite concerns over supply chain disruptions and weaker sales, the company posted a 10.1% increase in full-year profit in August.

Alongside its fellow ‘WAAAX’ shares like Afterpay Ltd (ASX: APT), future expected growth has seen the Altium share price outperform the S&P/ASX 200 Index (ASX: XJO) in 2020.

Why could the ASX tech share be under pressure today?

The big news out of the United States overnight was to do with government stimulus. While the Altium share price has been propelled higher by strong government and central bank support, that could be about to change.

US President, Donald Trump, has put further stimulus talks on ice until after the election. That’s currently set to occur on 3 November, which could leave some tech shares with significant US operations in the lurch until then.

There’s a two-fold impact that I can see here. Firstly, less stimulus means less support for businesses which could impact stability and earnings. Businesses won’t get as many subsidies and people are less likely to spend without further government stimulus.

Secondly, it could lead to currency impacts. That could affect supply chain costs and the realised profits from overall sales across the globe.

Altium is largely based in the US with the majority of its executives over there. It also earns a significant portion of its US$189.1 million in revenues overseas which makes the Altium share price worth watching in October.

Foolish takeaway

The Altium share price has had a strong year so far but I think it’s in for a tough time ahead of the US election.

More reading

• $10,000 invested in the Altium (ASX:ALU) IPO is worth how much now?
• 2 exciting ASX tech shares to buy and hold for a decade
• Altium (ASX:ALU) updates market on restructure
• ASX 200 jumps 2.6%, big 4 banks surge
• 2 outstanding ASX tech shares to buy for the long term

Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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Flexigroup Limited (ASX: FXL) recently united its Flexigroup and flagship consumer brand under the name ‘Humm’. Humm is a buy now, pay later (BNPL) and interest free finance provider, currently operating in Australia, New Zealand and Ireland. Could its rebranding and recent capital capital raising make it an opportunity for those that missed out on the Afterpay Ltd (ASX: APT) share price run?

Did something happen to Flexigroup? 

Flexigroup has changed its business model and proposition to provide ‘interest free buying power for everything, everywhere and for everybody’. It’s been one year since the company launched its Humm brand. Humm has evolved into a leader in the BNPL space involving transactions over $1,000 and is achieving strong and profitable customer growth. Humm is ranked as the third largest BNPL player in Australia with 17.5% market share, 2.1 million customers, 56,700 retail partners and $2.1 billion in transaction volume in FY20. 

Flexigroup commented that since transforming its Ireland business from leasing to BNPL, its customer base doubled in FY20. It also delivered strong, double-digit growth across volumes and retail customers. With many of Flexigroup’s retail partners in Ireland also operating in the United Kingdom, this provides a strong optionality for further expansion. 

Capital raising 

On 26 August, in conjunction with the company’s FY20 results, Flexigroup announced a $140 million capital raising to ramp up its strategy under Humm. The net proceeds of the capital raising will be used to provide balance sheet strength to underpin funding of a sustainable growth outlook. The additional capital will further enable investment in enhancements to the customer experience and expansion of business partnerships and alliances. The capital raising had an entitlement offer price of $1.14 which is near the current Flexigroup share price.

Could this be an opportunity for those that missed the Afterpay share price run?

The Afterpay share price has shown a significant amount of strength in recent weeks, cruising past the $80 mark on Tuesday. Investors might be looking to Flexigroup as a cheaper BNPL alternative to make up for a missed opportunity in Afterpay. 

While Flexigroup has truly committed to being a BNPL player, I believe its shares are cheap for a reason. The Flexigroup share price has underperformed all its peers in the BNPL space and may not necessarily deliver the explosive growth we’ve sees from the likes of Afterpay and Zip Co Ltd (ASX: Z1P). While it does appear to be relatively cheaper than its peers, personally I would prefer to invest in the market leading BNPL shares.

More reading

• Why the Afterpay (ASX:APT) share price is charging higher today
• A2 Milk and Mesoblast were among the most traded shares on the ASX last week
• Why this ASX tech share could be better than BNPL stocks 
• Could the Zip share price be ready to have a crack at $10 again? 
• Why now is a great time to buy ASX shares

Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy right now?

The CBA share price has fallen around 11% since 11 August 2020, which is a fairly sizeable decline because that’s wiped out a lot of the gains made since May.

But lower prices could be a buy signal for investors because ultimately buying at a cheaper price should help future returns. 

The FY20 result was quite solid in my opinion, compared to other major ASX banks. Statutory net profit was up 12.4% because of gains on sales of divestments. Cash net profit after tax (NPAT) only dropped 11.3% to $7.3 billion.

However, COVID-19 had a sizeable effect on its loan impairment expense. It reported a $2.52 billion loan impairment expense, with a $1.5 billion COVID-19 provision. The net interest margin (NIM) fell by 2 basis points to 2.07%.

Loan payment holidays

One of the biggest worries for banks at the moment is that a large number of borrowers still aren’t making repayments due to the coronavirus-caused crisis. If these loans don’t start repaying to the banks in the next few months then the CBA share price could suffer more.

Last week CBA revealed some details about its loan book.

The total number of loan deferrals in August 2020 was 174,000, down from 182,000 in July and down from 210,000 in June. In terms of the dollar amount this represents, it was $59 billion in August, $62 billion in July and $67 billion in June.

In terms of home loans, the balance (in dollar terms) of loans that are still being deferred was 9.8% in August, 10.1% in July and 10.8% in June.

The number of loans where the deferral expired or was exited was $5.7 billion in August. However, there were $2.3 billion of new approved or extended loan deferrals in August, with $1.7 billion of those an extension of an existing deferrals.

Whilst the picture is certainly not perfect for CBA, it seems to be improving every month which is obviously a good thing.

The CBA share price may improve as its loan book returns closer to normal.

The dividend

CBA paid a full year FY20 dividend of $2.98 per share, which was a 31% reduction compared to FY19. That was about as much as the bank could pay considering APRA’s direction to maintain strong balance sheets during this period. 

The interim FY21 dividend may also be reduced. But in my opinion CBA is probably the most reliable big four ASX bank for dividends because the profit remains more resilient thanks to its quality.

At the current CBA share price it offers a FY20 grossed-up dividend yield of 6.4%. But the FY21 grossed-up dividend yield could be about 5%.

Other options

The CBA share price may not do too much over the next few years with rising bad debts and a low NIM. There would need to be strong credit growth to make up for those negatives. I don’t think that CBA is a buy today. The dividend may not get back to FY19 levels for a long time.

There are other ASX shares with better dividend prospects in my opinion. For starters, Macquarie Group Ltd (ASX: MQG) could be the best ASX bank for dividends in my opinion with better potential growth. But Macquarie is not my top dividend pick.

I think ideas like WAM Microcap Limited (ASX: WMI), WAM Leaders Ltd (ASX: WLE), Vitalharvest Freehold Trust (ASX: VTH) and Pacific Current Group Ltd (ASX: PAC) could be picks for higher dividend income over the next few years compared to CBA.

In terms of the most reliable dividend options, I believe ASX shares like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Brickworks Limited (ASX: BKW), Rural Funds Group (ASX: RFF) and APA Group (ASX: APA) can continue to provide growing dividends over the coming years.

More reading

• Why this Federal Budget is good for many ASX shares
• Here’s where you could invest your Woolworths (ASX:WOW) dividends today
• Which ASX banking share is the cheapest today?
• ASX 200 jumps 2.6%, big 4 banks surge
• Top broker tipping turnaround in ASX big bank profit margins

Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED, WAM MICRO FPO, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks, Macquarie Group Limited, RURALFUNDS STAPLED, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of APA Group. 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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The CSL Limited (ASX: CSL) share price has done well in 2020 and the Federal Budget could have more good news in store.

While the S&P/ASX 200 Index (ASX: XJO) has slumped 10.9% this year, the CSL share price has climbed 4.4% higher.

I think the Federal Budget contained good news for vaccines and those organisations involved with the push towards coronavirus treatments. This to me says the CSL share price could be on the move in the coming months.

What the Federal Budget means for the CSL share price

There were a lot of areas covered by Treasurer Josh Frydenberg in last night’s Federal Budget. One of those surrounded potential COVID-19 vaccine candidates such as that being developed by the University of Queensland 

CSL is partnering with the Aussie university as it researches a potential vaccination candidate. That’s already seen the Aussie biotech ink a deal with the government to supply 84.8 million doses of any COVID-19 vaccine.

However, Treasurer Frydenberg has earmarked billions of dollars for spending on COVID-19 vaccines, both here and abroad. $1.7 billion is already being spent in agreements for the University of Oxford and the University of Queensland vaccines.

There’s also more money going towards the CSIRO and the Medical Research Future Fund for more COVID-19 research.

I see more focus on healthcare and vaccine development as good news for the CSL share price. The more government support and goodwill towards the sector that exists, the better the operating environment for CSL.

Depending on the successful vaccine candidate(s), we could also see further deals signed with CSL depending on global and domestic demand.

Foolish takeaway

The CSL share price has already outperformed in 2020 but I think it has further to run. I think COVID-19 will continue to dominate share market movements in the next 6-12 months.

That means major partners like CSL may continue to hold their gains despite volatility in the market.

More reading

• Why this Federal Budget is good for many ASX shares
• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 rises on mixed day, big gold merger
• Why the Coles Group (ASX:COL) share price just got upgraded to “buy”
• Why I would buy CSL (ASX:CSL) and this blue chip ASX share

Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. 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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Every so often I like to take a look to see how investments in initial public offerings (IPOs) would have fared.

On this occasion, I’m going to take a look at electronic design software company Altium Limited (ASX: ALU).

When did Altium launch its IPO?

You might be surprised to learn that Altium isn’t a new listing and has actually been trading on the Australian share market for over two decades.

In fact, Altium wasn’t even known as Altium when it first landed on the ASX boards. In August 1999, it listed on the share market as Protel Systems, raising $30 million at $2.00 per share.

By many measures, the Altium/Protel IPO was a huge flop and a series of failures led to the Altium share price falling very heavily over the first couple of years.

So much so, the Altium share price at one stage dropped as low as 9 cents in 2011. That represents a 95.5% decline from its IPO price.

But anyone that stuck with the company through its hard times certainly has been rewarded today.

Thanks to a series of successful acquisitions that have transformed the company into the leading player in the industry, the Altium share price is now fetching $35.40.

This means that if you had invested $10,000 into the Altium IPO in 1999, you would have received 5,000 shares. These shares would now have a market value of $177,000.

In addition to this, in FY 2021 the company is forecast to pay shareholders dividends of 40 cents per share. Which means that those 5,000 shares would generate dividends of $2,000. This represents a yield on cost of 20%.

But perhaps the best thing is the company’s outlook. Due to the Internet of Things and artificial intelligence markets driving strong demand for its services, I believe Altium is well-positioned to generate very strong returns for investors over the next 20 years.

Combined with the power of compounding, I suspect these 5,000 shares will be worth significantly more than $177,000 in 2030 and 2040.

Foolish Takeaway.

The Altium IPO has proven to be a very successful one, but it did go through a number of ups and (mostly) downs before getting there.

I believe this demonstrates both the risks and rewards of investing in IPOs. Things have worked out for Altium and its shareholders, but it could have been a very different story if it were not for its game-changing acquisitions.

In light of this, I think investors looking to invest in IPOs should consider companies which are already positioned for long term growth and won’t require acquisitions to get them there.

More reading

• 2 exciting ASX tech shares to buy and hold for a decade
• Altium (ASX:ALU) updates market on restructure
• ASX 200 jumps 2.6%, big 4 banks surge
• 2 outstanding ASX tech shares to buy for the long term
• 3 ASX shares I’d buy if the share market crashes again

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia has no position in any of the stocks mentioned. 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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ASX gold shares were on fire on Tuesday as Saracen Mineral Holdings Limited (ASX: SAR) and Northern Star Resources Ltd (ASX: NST) announced a new mega merger. That’s good news for shareholders in those companies, but what does it mean for the Newcrest Mining Limited (ASX: NCM) share price?

What was announced on Tuesday?

Northern Star and Saracen are set to combine forces under a $16 billion merger of equals. The merger would form a top 10 global gold company with target production of 2 million ounces of gold per year.

This is the latest step in the companies’ relationship after both become 50% joint venture partners in the Kalgoorlie Super Pit Mine.

Northern Star will acquire 100% of Saracen shares for 0.3763 Northern Star shares for each Saracen share to form the new company.

Both companies’ boards have supported the move as a way to unlock more value and give Saracen broader international reach.

What does this mean for the Newcrest share price?

The Newcrest share price closed 0.2% lower following Tuesday’s news. Clearly, a bigger, badder ASX gold company isn’t good news for Newcrest’s position as top dog.

However, I don’t think there is too much to fear from the planned merger. Newcrest is still Australia’s largest gold producer and will continue to be after the merger.

However, there are a couple of issues that might weigh on the Newcrest share price. One is potentially higher supply which may impact on gold prices.

I’m not sure that’s too much of a problem given the company’s target 2 million ounces per year production level. There’s also a potential threat to Newcrest’s status as the leading Aussie gold producer around the globe.

I think that’s what is weighing on investors’ minds as the Newcrest share price closed slightly lower on Tuesday. 

Foolish takeaway

It’s still too early to determine what the impact of the merger will be on the Newcrest share price as well as its market share and profits.

I don’t think it’s particularly good news but it may not be too much of an issue given Newcrest’s scale and dominance.

More reading

• ASX 200 rises on mixed day, big gold merger
• ASX 200 down 0.2%: Northern Star & Saracen announce mega merger, IAG settles class action
• Why Baby Bunting, Northern Star, Oil Search, & Telix shares are storming higher
• Northern Star (ASX:NST) and Saracen (ASX:SAR) announce mega merger
• 5 things to watch on the ASX 200 on Tuesday

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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Investors in ASX shares have a lot to like about last night’s Federal Budget. Tax cuts and monetary incentives look set to boost profits and encourage business activity in 2021.

Why the Federal Budget is good for ASX shares

There were some clear winners from last night’s budget announcement by Treasurer Josh Frydenberg.

These include construction leaders like Mirvac Group (ASX: MGR) with further infrastructure spending. There were also coronavirus-related companies like CSL Limited (ASX: CSL) that could receive a boost alongside innovation companies in the fintech space.

But there are also the generic tax cuts that will sweep across most of corporate Australia. For one thing, the government wants to spark more capital expenditure by allowing full expensing of ‘eligible capital assets’. 

That could trigger a spending spree that boosts ASX shares higher. More long-term investment is good for growth provided the assets deliver future benefits.

There’s also the microeconomic impacts we could see flow through to earnings. These include a big boost for consumer discretionary shares with $17.8 billion in personal income tax cuts.

The government is hoping more handouts and bigger tax cuts will stimulate greater spending. That could see ASX retail shares like JB Hi-Fi Limited (ASX: JBH) and Super Retail Group Ltd (ASX: SUL) continue to book strong sales.

Looking even further upstream, we arrive at the ASX bank shares. I think investors in the Aussie banks would have to be happy with this budget and we could see shares like Commonwealth Bank of Australia (ASX: CBA) climb higher.

A stronger economy and lower unemployment, also boosted by incentives in the latest budget, are good for banks. These mean lower default rates and better loan quality which is good for investors.

Foolish takeaway

Overall, I feel this was a very ‘business-friendly’ Federal Budget given the sweeping tax cuts and government spending across the economy.

For investors worried about buying into ASX shares right now, I think this sends a strong signal that corporate Australia could bounce back strongly in coming years.

More reading

• Why the JB Hi-Fi (ASX:JBH) share price could soar into Christmas
• Why the Coles Group (ASX:COL) share price just got upgraded to “buy”
• Why I would buy CSL (ASX:CSL) and this blue chip ASX share
• Here’s where you could invest your Woolworths (ASX:WOW) dividends today
• Which ASX banking share is the cheapest today?

Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Super Retail Group Limited. 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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Vanguard US Total Market Shares Index ETF (ASX: VTS) is a popular investment option for many Aussies. Is it one of the best exchange-traded funds (ETFs)?

A quick overview of Vanguard US Total Market Shares Index ETF

This ETF is provided by Vanguard, one of the world’s best operators. Vanguard is owned by its investors, it shares its profit by lowering management fees further if it can. It is one of the cheapest ETF providers in the world.

Vanguard US Total Market Shares Index ETF aims to give investors exposure to the American share market. The US is where many of the world’s best businesses are based, so this ETF gives access to many of those top names like Apple, Microsoft, Amazon, Alphabet, Facebook, Berkshire Hathaway, Visa and Mastercard.

Whilst the biggest businesses get the largest allocation in the ETF, it actually has around 3,500 investment positions – making it very diverse in terms of the number of holdings.

Vanguard US Total Market Shares Index ETF has an annual management fee of 0.03%, which is one of the cheapest available to Aussies. Extremely low fees are great because it leaves nearly all of the returns in the hands of the investor.

Positives

The biggest positive has been the returns, which is ultimately what investing is all about. Over the past three years its net returns have been an average of 16.6% per annum. Over the past decade it has returned 17.1% per annum.

That level of return shows how good the underlying businesses in its portfolio are. The strength of those large tech shares has been undeniable. They seem unstoppable looking into the foreseeable future, unless there is some sort of government or regulation interference.

People may think of this ETF as a US one, but you have to remember that many of the larger businesses generate earnings from across the world. This is largely a global portfolio when you look at the underlying earnings of the holdings.

Vanguard US Total Market Shares Index ETF has an extremely low fee. Whilst 0.20% of fees or even 1% may not seem like much in one year, it can make a big difference over several years when compounding takes effect.

Many of the world’s most promising businesses choose to list in the US, so this ETF will likely always have good growth potential.

Negatives

There aren’t many negatives with this ETF. But there are a few if you try to find them.

Vanguard US Total Market Shares Index ETF’s dividend yield is pretty low at just 1.6%. Several of the ETF’s largest holdings like Amazon, Alphabet, Facebook, Berkshire Hathaway and Tesla don’t pay a dividend. The valuation of the ETF has risen strongly too, pushing down the potential yield. But more growth is a good alternative. 

Indeed, that valuation for Vanguard US Total Market Shares Index ETF now stands with a price/earnings ratio of 27.5x. That’s pretty hefty when you compare that to the ASX, European shares or even Asia.

The ETF offers plenty of diversification, but by being a US ETF you miss out on plenty of quality global shares like AMSL, LVMH, Tencent, Alibaba and so on. But global ETFs cost a bit more in fees, so it’s a balance of finding the right mix.

There is also the consideration of currency risks. It can add a risk to your investing when you invest in businesses that earns in different dollars and are traded in different currencies. It’s better to buy overseas shares when the Australian dollar is high. The Australian dollar is quite when when compared to the US dollar over the last couple of years. But when the Australian dollar falls it becomes more expensive to buy American shares.

I also think that the US election may cause uncertainty over the next few months, so if you’re thinking about investing, it may help to wait a few weeks first.

Foolish takeaway

Vanguard US Total Market Shares Index ETF is one of the best ETFs around in my opinion. It generates good returns with very low costs. It gives exposure to some of the best businesses in the world. However, as someone who is willing to invest any type of investment on the ASX, I’m not jumping today because the US share market has run hard, looks a bit expensive and the election could be bumpy. But if you just invest in ETFs, I think this is one of the best ones to regularly invest in. 

More reading

• Here are the 10 most popular ETFs on the ASX
• Want to invest in US shares? This ETF is a top option
• 2 ultra-cheap ASX ETFs any investor can add to a share portfolio
• The 3 best ETFs for passive investing

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

The post Is the Vanguard US Total Market Shares Index ETF (ASX:VTS) a great long-term investment? appeared first on Motley Fool Australia.

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