When it comes to choosing an exchange-traded fund (ETF) to invest in, the preferred choice by far for ASX investors is the Vanguard Australian Shares Index ETF (ASX: VAS). We know this because VAS has just under $10 billion in assets under management. Its closest competitor for the dollars of Aussie investors, the iShares S&P 500 ETF (ASX: IVV), has just under $5 billion.
But if you're a fan of ASX tech shares, and you either own VAS or are looking at owning it, then you might be in for a nasty shock. This ETF owns almost any public Australian company you can think of. Its top shares include names like Telstra Corporation Ltd (ASX: TLS), Commonwealth Bank of Australia (ASX: CBA), and Woolworths Group Ltd (ASX: WOW).
Yet if you look at this ETF's top 10 holdings, you will see not one ASX tech name.
Indeed, you won't see any tech if you look at its 20 largest holdings. Our first tech name comes up at number 27 on VAS's latest portfolio data – Block Inc (ASX: SQ2). And that's not even technically an Australian company. It's only on our ASX due to its recent acquisition of the homegrown buy now, pay later (BNPL) company Afterpay.
Overall, the Tech (or Information Technology) sector only makes up 3.9% of VAS's total weighting. Compare that to Materials at 24.3% or Financials at 27%.
VAS ETF: Why are ASX tech shares missing in action?
So what's going on? Why doesn't this ETF invest even $4 in every $100 it receives into tech?
Well, it's not VAS's fault. The Vanguard Australian Shares Index ETF is, well, an index fund. That means it has to mirror the composition of the S&P/ASX 300 Index (ASX: XKO). And the ASX 300, in turn, has to rank the top 300 companies on our share market purely on market capitalisation (size). It just happens that our largest public companies here in Australia tend to be banks and miners. Thus, these are the ASX 300's (and VAS's) largest holdings too. The ASX's tech shares are all there. But they just don't occupy a huge presence in VAS's portfolio.
So if you want outsized exposure to the tech sector, you'll either need to buy the shares yourself, or else find an index ETF that mirrors a different index with a heavier weighting to the tech space. The IVV iShares S&P 500 ETF that we mentioned earlier is also an index ETF, but this one covers the US markets, not the ASX. In stark contrast, IVV has a 27.21% weighting to tech shares, since it is dominated by companies like Apple Inc (NASDAQ: AAPL), Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL), and Amazon.com Inc (NASDAQ: AMZN).
But there are tech-specific ETFs that cover ASX shares too. One example is the BetaShares S&P/ASX Australian Technology ETF (ASX: ATEC).
So, like with any investment, make sure you know what you're buying before you buy it. You might get a surprise you weren't preparing for!
