The Vanguard ASX-listed exchange-traded fund (ETF) Vanguard FTSE Asia Ex-Japan Shares Index ETF (ASX: VAE) has performed very well in recent years. In the last 24 months, it has risen by 26%, significantly outperforming the S&P/ASX 200 Index (ASX: XJO) over the same time period, which rose by approximately 15%.
This Vanguard ASX ETF aims to track the return of the FTSE Asia Pacific excluding Japan, Australia, and New Zealand. The idea is to provide investors with low-cost exposure to those shares.
Let's look at some features of why it could still be attractive.
Diversification
For investors who are heavily focused on ASX shares and US tech giants, I think this fund can be a useful addition to a portfolio.
Asia is home to a number of compelling businesses from a range of countries and industries. Those markets (and the allocation) in the fund include China (33.2%), India (22.3%), Taiwan (19.6%), South Korea (10.6%), Hong Kong (5.2%), Singapore (3.5%), Malaysia (1.8%), Thailand (1.6%), Indonesia (1.6%), and the Philippines (0.6%).
The four sectors with the biggest allocations are technology, financials, consumer discretionary, and industrials.
I think technology businesses are some of the most compelling ones to own, so it's good, in my view, that the VAE ETF has the largest weighting to this industry.
Finally, there are more than 1,700 businesses in the Vanguard ASX ETF portfolio, which I think provides a lot of diversification.
Strong businesses
The largest companies in the portfolio are among the world's largest and possess excellent economic moats. In other words, they have great economic advantages.
The six biggest holdings in the portfolio are: Taiwan Semiconductor Manufacturing, Tencent, Alibaba, Samsung, HDFC Bank, and Xiaomi.
The financial statistics behind these businesses are compelling. According to Vanguard, the earnings growth of the collective group of businesses was 16.5% over the prior 12 months.
It's therefore not surprising to me that the Vanguard ASX ETF delivered a total return of 17.06% over the year to 31 May 2025.
I think earnings growth is one of the key drivers of the underlying value of a business, so an earnings increase of 16.5% is promising for the near term. I think trends like digitalisation and a growing middle class are good tailwinds for Asian businesses.
Good valuation
According to Vanguard, the VAE ETF had a price-earnings (P/E) ratio of 14.2x at May 2025.
To me, when the figure for the pace of earnings growth is higher than the P/E ratio figure, it's an attractive investment. That comparison is called the PEG ratio.
If investors feel they have too little invested in Asian businesses, then this Vanguard ASX ETF could be an effective tool to achieve that diversification desire.
