3 reasons to buy another ASX ETF over the Vanguard Australian Shares Index ETF (VAS)

Here's why the VAS ETF may not always be the best choice.

| More on:
A young man wearing glasses writes down his stock picks in his living room.

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

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.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Motley Fool contributor Tristan Harrison has positions in Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Altium, Apple, BetaShares Nasdaq 100 ETF, CSL, Macquarie Group, Meta Platforms, Microsoft, Pro Medicus, REA Group, Technology One, Wesfarmers, and WiseTech Global. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has positions in and has recommended BetaShares Nasdaq 100 ETF, Macquarie Group, Wesfarmers, and WiseTech Global. The Motley Fool Australia has recommended Alphabet, Apple, CSL, Meta Platforms, Pro Medicus, REA Group, Technology One, and Vanguard Msci Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ETFs

The letters ETF with a man pointing at it.
ETFs

Invest $10,000 into these ASX ETFs next week

These ETFs provide investors with access to some high quality companeis.

Read more »

Businessman at the beach building a wall around his sandcastle, signifying protecting his business.
ETFs

Is the Vaneck Morningstar Wide Moat ETF (MOAT) a good long-term investment?

Is this ASX ETF a top pick to hold for years to come?

Read more »

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

4 quality ASX ETFs to buy after the market sell-off

Here's why these funds could be buys after recent market volatility.

Read more »

Hand holding Australian dollar (AUD) bills, symbolising ex dividend day. Passive income.
ETFs

Own Vanguard Australian Shares Index ETF (VAS) units? It's payday for you!

Find out what distribution VAS ETF is sending to bank accounts today.

Read more »

A young office worker is surrounded by peers who are clapping and congratulating her.
ETFs

3 reasons I think this fantastic ASX ETF is a top buy

Quality is just one factor that makes this ETF is a great pick, in my opinion.

Read more »

Three people in a corporate office pour over a tablet, ready to invest.
ETFs

4 ASX ETFs for growth investors to buy this month

These ETFs give investors easy access to large group of growth shares.

Read more »

A young woman with glasses holds a pencil to her lips as she is surrounded by the reflection of data as though she is being photographed through a glass screen project with digital data.
ETFs

This compelling ASX ETF may be a better way to invest in Aussie stocks than Vanguard Australian Shares Index ETF (VAS)

This ASX ETF could be an even more effective investment than Vanguard’s.

Read more »

Man smiling at a laptop because of a rising share price.
ETFs

How does direct indexing compare to buying ASX ETFs

Do you like index investing, but want more say in which stocks you pick?

Read more »