The Vanguard Australian Shares Index ETF (ASX: VAS) is a very popular exchange-traded fund (ETF) which tracks the S&P/ASX 300 Index (ASX: XKO), an index of 300 of the largest businesses on the ASX.
ETFs allow investors to gain instant exposure to a whole basket of shares in a single transaction, which is a great feature.
Aussies have allocated more money to VAS ETF than any other exchange-traded fund. At the end of June 2025, VAS ETF had more than $20 billion invested.
There are a number of reasons why it makes sense for Aussies to put a lot of money into the Vanguard Australian Shares Index ETF, so let's look at it.
Easy diversification
The VAS ETF gives exposure to 300 businesses, which is a pleasing level of diversification. We don't need to go out and buy 300 businesses ourselves, it can be attained with just one investment.
The fund is invested across a number of sectors including financials, mining, healthcare, consumer discretionary, industrials, real estate, communication services, energy, consumer staples, information technology and utilities.
It's so easy to get diversification to names like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), National Australia Bank Ltd (ASX: NAB), Westpac Banking (ASX: WBC), CSL Ltd (ASX: CSL), Wesfarmers Ltd (ASX: WES), ANZ Group Holdings Ltd (ASX: ANZ), Macquarie Group Ltd (ASX: MQG), Goodman Group (ASX: GMG) and Telstra Group Ltd (ASX: TLS).
Very low costs
With how the VAS ETF just tracks the ASX 300 Index, rather than making investment decisions, it's able to provide that service for a very low cost.
It's one of the cheapest investment funds that Aussies can invest in.
The Vanguard Australian Shares Index ETF has an annual management fee of 0.07%. This means nearly all of the returns stay in the hands of investors rather than being handed over in management fees.
Dividend income
Australian companies are very generous with their dividends, partly to unlock the franking credits that have been generated by paying income tax to the ATO. This gives the VAS ETF a very pleasing dividend yield compared to the international share market.
ETFs receive the dividends from all of the businesses inside the portfolio and distribute them to investors. Any crystallised/realised gains inside the portfolio from sold shares are also distributed shareholders of the ETF.
The dividend yield of the fund (not including franking credits or future distributed capital gains) at the end of June 2025 was 3.3%. If dividends from the collective ASX 300 grow from here, then the cash payout from the VAS ETF could grow too.
Good returns
Investing is all about making returns. The VAS ETF has certainly delivered decent returns. Of course, past performance is not a reliable indicator of future performance, but the returns have been pleasing in the last few years thanks to names like CBA, Wesfarmers and Goodman.
In the five years to June 2025, it has returned an average of 11.75% per year, with the distribution income being an average of 4.6% per year.
Automatic portfolio adjustments
One final point I'll highlight is that this isn't just a static portfolio of 300 names where they fade into obscurity one by one. The VAS ETF regularly adjusts which businesses are in the portfolio depending on how large they are.
The VAS ETF is regularly shifting towards the right ASX shares to own, allowing it to achieve solid investment returns rather than holding weakening businesses forever and experiencing capital losses.
I think portfolio adjustments are a key reason why we should be able to holds onto this fund for decades to come, even if some current ASX blue-chip shares eventually fail.
