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.

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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.

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