Why the VanEck Vectors Australian Equal Weight ETF (MVW) is a great way to invest in ASX shares

Evenly-split diversification is a key part of the strategy.

| More on:
A mature age woman with a groovy short haircut and glasses, sits at her computer, pen in hand thinking about information she is seeing on the screen.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The VanEck Vectors Australian Equal Weight ETF is evenly invested in around 80 names
  • This offers more diversification than other ETFs that are heavily concentrated on bankers and miners
  • The MVW ETF has outperformed the ASX 200 in a majority of the calendar years since its inception

There are many different ways to invest in ASX shares. I'm going to tell you why VanEck Vectors Australian Equal Weight ETF (ASX: MVW) could be one of the most effective ways to invest and get good diversification.

I like the idea of building my own portfolio and deciding how much to invest in each ASX share. However, the idea of doing that is not for everyone. It's important — and challenging — to get the right balance and not be too heavily invested in one area.

One of the main gripes I have with exchange-traded funds (ETFs) like Vanguard Australian Shares Index ETF (ASX: VAS) and BetaShares Australia 200 ETF (ASX: A200) is that they're mostly invested in just a few names from two industries: banking and mining.

It's no surprise that's where over half of the S&P/ASX 200 Index (ASX: XJO) is invested. Indeed, a sizeable portion of the Australian economy is focused on commodities and financial services (with banks heavily exposed to housing loans).

I think the MVW ETF is a better way of investing in ASX shares and the Australian economy.

Vectors Australian Equal Weight ETF diversification

As the name may give away, the positions in this portfolio are equally weighted. Instead of around 17% of the portfolio being invested in BHP Group Ltd (ASX: BHP) and Commonwealth Bank of Australia (ASX: CBA) shares, the holdings are rebalanced evenly every three months.

While the number of holdings in this ETF is less than in VAS ETF and A200 ETF, the fact it's not so heavily concentrated makes the MVW ETF more diversified in my eyes.

There are currently 80 ASX share positions in the portfolio and they are all seen as 'blue chip' companies that generate at least 50% of their revenue or assets from the Australian market.

According to VanEck, since the MVW ETF's inception in March 2024, it has outperformed the S&P/ASX 200 Index (ASX: XJO) by an average of 1.7% per annum, with an actual return per annum of 9%. It has also outperformed in 12 of the past 15 calendar years, including the last six in a row, according to the fund provider.

This outperformance has been possible because of the larger exposure to smaller companies, which have outperformed the big stocks.

Foolish takeaway

For investors wanting diversification and potentially better returns because of larger exposure to ASX growth shares, I think this ETF could be a better pick for investors. In my mind, there's more to the ASX than just miners and bankers.

Motley Fool contributor Tristan Harrison 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ETFs

Two people work with a digital map of the world, planning their logistics on a global scale.
ETFs

Why the iShares Global 100 ETF (IOO) is a great long-term buy

This ETF ticks all the boxes I’m looking for.

Read more »

A group of young ASX investors sitting around a laptop with an older lady standing behind them explaining how investing works.
ETFs

Why these strong ASX ETFs could be top long term picks

Here's why these ETFs could be great options for buy and hold investors.

Read more »

Four young friends on a road trip smile and laugh as they sit on roof of their car.
ETFs

Records tumble! Hot ASX ETFs smash all-time highs again on Friday

It's a little strange to see these ETFs hit new highs on a red day for the ASX...

Read more »

Man cooking and telling to be quiet with his finger on his lips, symbolising a secret sauce.
ETFs

16% per annum: What is the VanEck Wide Moat ETF's secret sauce?

This Buffett-inspired ETF has delivered mind-blowing performance.

Read more »

ETF with different images around it on top of a tablet.
ETFs

4 excellent ASX ETFs to buy this month

Here's why these funds could be top options for investors right now.

Read more »

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
ETFs

Why the Vanguard US Total Market Shares Index ETF (VTS) is a top long-term buy

I view the VTS ETF as one of the leading funds Aussies can buy.

Read more »

A mature age woman with a groovy short haircut and glasses, sits at her computer, pen in hand thinking about information she is seeing on the screen.
ETFs

Should the Vanguard Australian Shares Index ETF (VAS) be the first choice for your superannuation fund?

Can this Vanguard ETF provide what retirees are after?

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
ETFs

This ASX ETF has soared almost 40% in a year! Should you buy?

This Japanese ETF has performed exceptionally well.

Read more »