Why is the Vanguard Australian Shares Index ETF (ASX:VAS) the most successful Aussie ETF?

VAS is still the king of ASX exchange-traded funds. But why do investors love it so much?

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There are now more exchange-traded funds (ETFs) on the ASX boards than you can poke a stick at. From their emergence as simple index funds, ETFs have taken the investing world by storm over the past decade or two.

Ten years ago, you’d have been pressed to find more than a handful of ETFs on the Australian share market. But today, there are dozens and dozens of them.

You can find an ASX ETF for almost anything. Be that palladium bullion, global mining shares, cryptos, crude oil futures, or inflation-linked government bonds.

But looking at the most popular ASX ETFs, it’s clear that the humble index fund remains king of the hill.

As it stands today, the ASX’s most popular ETF is the Vanguard Australian Shares Index ETF (ASX: VAS).

VAS’s provider Vanguard tells us that this fund had $9.59 billion in funds under management (FUM) as of 31 October. That’s miles ahead of its closest rival, the iShares S&P 500 ETF (ASX: IVV), which has approximately $5.3 billion in FUM today.

So, what makes this ETF so popular?

Well, one possible explanation is its unique structure. Most index ETFs that track the ASX share market mirror the S&P/ASX 200 Index (ASX: XJO). This flagship ASX index tracks the performance of the Australian share market’s 200 largest companies. But VAS instead mirrors the S&P/ASX 300 Index (ASX: XKO).

As you can probably guess, this index includes an additional 100 companies outside the ASX 200. This gives VAS a diversification boost and more exposure to the small-cap market.

It has also given VAS a performance edge over its ASX 200 rivals. Over the past 10 years, VAS has returned an average of 9.91% per annum. In contrast, the iShares Core S&P/ASX 200 ETF (ASX: IOZ) has given investors an average of 9.75% per annum over the same period.

Another factor that could be at play is Vanguard’s reputation, something our chief investment officer Scott Phillips recently discussed.

Many investors know that Vanguard is a not-for-profit company. This can give Vanguard ETFs a pricing edge as they don’t have to give their providers the same kind of margin as a for-profit provider. We can see this in VAS’s annual management fee of 0.1%. That’s $10 a year for every $10,000 invested.

In the vanguard of reputations…

It probably doesn’t hurt that the great investor Warren Buffett once described Vanguard’s late founder Jack Bogle as doing more for the average investor than anyone else. Here’s what Buffett said in one of his letters to shareholders a few years ago:

If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle… he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me.

That is a tough act to follow.

So, it’s probably a combination of these factors that make VAS the ASX’s most popular ETF.

At the time of writing, units in VAS are going for $92.92, down 0.33% for the day so far.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended iShares Trust - iShares Core S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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