About a month ago, I penned a piece about where to invest $10,000 into ASX stocks in today's bullish share market. One of my ideas was an ASX index fund such as the Vanguard Australian Shares Index ETF (ASX: VAS).
While I still believe that buying a conventional stock market index fund is a great long-term investment, the VAS ETF is no longer my top choice in today's market.
As most investors would be aware, the S&P/ASX 200 Index (ASX: XJO) continued to push into even higher record territory over November, driven mostly by the big four ASX banks. Commonwealth Bank of Australia (ASX: CBA), for example, continued to hit new record highs last month, crossing $160 a share for the first time ever.
As these big banks have continued to rise in value, their presence in ASX index funds like VAS has also swelled. Today, the big four make up a whopping 23.7% of the ASX 200's weighting, and CBA alone accounts for more than 10.5%.
This is the primary reason behind my view that the best investment in the current market is no longer an ASX index fund like VAS but an alternative called the Vanguard MSCI Australian Small Companies Index ETF (ASX: VSO).
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One ASX stock to buy right now
VSO is an index fund that tracks the Australian share markets. However, as its name implies, it forgoes exposure to the largest stocks on the ASX, instead offering investors a broad portfolio consisting of around 170 of the market's mid and small-cap shares.
This portfolio's larger holdings include names like JB Hi-Fi Ltd (ASX: JBH) and TechnologyOne Ltd (ASX: TNE), but go all the way down to smaller companies like Vulcan Steel Ltd (ASX: VSL) and Mader Group Ltd (ASX: MAD).
Crucially, the largest stocks in this portfolio account for no more than 3% each in weighting terms. That means that, unlike an ASX 200 fund, you won't be potentially overexposed to a single company.
This index fund has proven to be a solid investment over long periods of time. As of 31 October, the Vanguard Small Companies Index ETF has delivered an average return of 8.75% per annum over the past ten years.
Although past performance is no guarantee of future returns, that healthy figure gives me confidence that this index fund will continue to be a great long-term investment.
In today's expensive market, the VSO ETF offers investors many potential positives. As such, if I could only buy and hold a single ASX stock right now, this would be it.
