Vanguard Australian Shares Index ETF (ASX: VAS) is the most popular exchange-traded fund (ETF) on the ASX. I will outline some reasons why there may be even better ASX ETFs to invest in.
At the end of January 2024, the ETF size was $14.6 billion. This money is largely allocated to the ASX's biggest blue-chip holdings including BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), CSL Ltd (ASX: CSL), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ), Macquarie Group Ltd (ASX: MQG) and Wesfarmers Ltd (ASX: WES).
The VAS ETF is a good investment, but here are some things to think about.
Not the cheapest way to invest in ASX shares
One major reason to like the VAS ETF is its very cheap management fee. The lower the cost, the bigger the returns that stay in the hands of the investor. The VAS ETF has an annual fee of just 0.07%.
Vanguard is great at offering low-cost ETFs, and I believe it will always be very competitive. But, the BetaShares Australia 200 ETF (ASX: A200) is even cheaper. It has an annual management fee of 0.04%.
So while the fees are quite similar, and the allocation to the larger positions is similar, I can't ignore the fact that A200 is actually a cheaper way to do it.
Not much technology exposure
If we look at the best-performing shares over the past 10 or 20 years on the ASX or global share markets, many are in the technology space — or at least technology is a significant component in the service/offering.
The ASX has some great companies like REA Group Limited (ASX: REA), Altium Limited (ASX: ALU), WiseTech Global Ltd (ASX: WTC), Pro Medicus Ltd (ASX: PME) and TechnologyOne Ltd (ASX: TNE). But they aren't major parts of the S&P/ASX 300 Index (ASX: XKO).
Global tech companies like Microsoft, Alphabet, Apple and Meta Platforms are already some of the biggest in the world. But the ASX and the Vanguard Australian Shares Index ETF don't offer exposure to tech the way that some other funds do.
The Betashares Nasdaq 100 ETF (ASX: NDQ) in one ETF that offers exposure to those large technology companies, and it gives much more allocation to tech than the VAS ETF.
Not a lot of diversification
Tech has been a great-performing sector for a while, but I'd suggest the VAS ETF is too heavily weighted to ASX financial shares (29%) and ASX mining shares (23.7%). Those two sectors alone make up more than half of the Vanguard Australian Shares Index ETF portfolio.
While financials and miners are known for paying good dividends, they're not exactly known for strong compounding growth year after year.
Plenty of other ETFs on the ASX have more even allocation between different sectors.
Vanguard MSCI Index International Shares ETF (ASX: VGS), which invests in the global share market, has a double-digit allocation to five different sectors: IT (24.1%), financials (14.8%), healthcare (12.3%), industrials (11.1%) and consumer discretionary (10.7%).
I think diversification plays an important role in building a quality portfolio. VAS ETF is decent, but others are more diversified, such as the VGS ETF.
