Under the hood of the ETFs you are most likely to own

A growing number of Australian investors are using ETFs as the foundation of their portfolios. They’re attractive to investors because they are typically low-cost, transparent and easy to access. These characteristics have led to meteoric adoption over the last decade.

They’ve made investing simple. This does not mean that investors should stop looking under the hood.

Part of being a successful long-term investor is understanding what you own. That matters even more when a handful of ETFs now dominate many Australian portfolios. While the name of the ETF may indicate it is diversified on the surface, underlying exposures can often be far more concentrated than investors realise.

Let’s take a look at the four ETFs with the highest Funds Under Management (FUM). That makes them the ETFs that Australians are most likely to own. Explore what you’re buying and what it means for your portfolio.

Vanguard MSCI Index International Shares ETF (VGS)

Funds Under Management: $46.9 billion

Australian investors are much more comfortable with investing directly in domestic shares, meaning that an international ETF appeals not just to ETF investors, but to all investors looking to gain international exposure easily.

The fund tracks the MSCI World ex-Australia Index, giving investors exposure to large and mid-sized companies across developed markets. At first glance, it appears broadly diversified. The ETF holds companies across North America, Europe and Asia. The underlying portfolio tells a more concentrated story.

The United States dominates the index, typically making up around 70% of the portfolio. Technology companies also play an outsized role, with names like Apple, Microsoft and Nvidia sitting among the largest holdings.

This means many investors using VGS for ‘global diversification’ are still heavily reliant on the performance of the US market and, increasingly, a small group of mega-cap technology companies.

That does not necessarily make it a bad investment. These businesses have generated extraordinary earnings growth and shareholder returns over the last decade. Investors should understand that VGS is not evenly spread across the globe. It is largely a bet on developed markets, particularly the US.

The ETF is also unhedged, meaning movements in the Australian dollar can materially impact returns. A falling Australian dollar boosts returns for local investors, while a rising dollar reduces them.

Vanguard Australian Shares Index ETF (VAS)

Funds Under Management: $24.3 billion

VAS tracks the ASX 300 – the 300 largest companies by market capitalisation in Australia.

However, the Australian market itself is highly concentrated.

Financials and materials dominate the index, meaning investors are heavily exposed to banks and miners. At Mid-May, the top two companies make up over 20% of the index. The top ten make up 47%.

This concentration reflects the structure of the Australian market. Unlike the US, Australia has relatively few large technology companies. Instead, the market is driven by banks and resources.

For investors, this creates opportunities and risks.

Australian shares have historically delivered attractive dividend income and franking credits, which appeal to income-focused investors. But the concentration in cyclical sectors means returns can be heavily influenced by the housing market, commodity prices and the domestic economy. I’ve written about this concentration issue here.

It’s important that investors using this ETF as a building block understand that instead of being diversified, it is a relatively concentrated bet on financials and resources. My colleague Sim has written on an alternative to this concentration here.

iShares S&P 500 ETF (IVV)

Funds Under Management: $13.4 billion

IVV tracks the S&P 500. Over the past decade, this exposure to the largest US companies has been incredibly rewarding for investors.

It is important to understand the concentration that comes with the S&P 500. The largest technology companies now make up a significant portion of the index. 39% of the index is in the top 10 (at 18 May 2026). NVIDIA makes up 8.59% of an index of 500 stocks. Apple is 6.87%.

This concentration has helped drive strong returns as these businesses benefited from structural trends like cloud computing and Artificial Intelligence. It also means investors are increasingly reliant on a relatively small group of companies continuing to deliver exceptional earnings growth.

When investors think of the S&P 500, it is normally thought of as representative of the US economy. Many of the largest companies in the index generate substantial revenue globally. They are not just buying US exposure, but to some of the world’s largest multinational businesses.

Investors should understand how concentrated IVV is, especially when looked at through a sector perspective.

BetaShares NASDAQ 100 ETF (NDQ)

Funds Under Management: $9.7 billion

NDQ has surged in popularity as investors chased exposure to the technology sector and the growth of Artificial Intelligence (AI).

The ETF tracks the NASDAQ 100 Index, which contains 100 of the largest non-financial companies listed on the NASDAQ exchange.

The ETF includes household names like Apple, Microsoft and Amazon. It is less like a broad market ETF with more exposure to US technology companies.

Technology and communication services dominate the index, making the ETF far more concentrated than many investors realise. The performance of a handful of mega-cap growth stocks can have a significant impact on overall returns.

This concentration can amplify both gains and losses. This is important for investors to acknowledge before investing, as it highly influences portfolio performance and volatility.

During periods of strong growth and falling interest rates, NDQ has delivered exceptional returns. Growth-focused companies can also experience sharp drawdowns when valuations come under pressure.

One common misconception can be holding NDQ alongside VGS and IVV and expect diversification. There’s substantial overlap in the underlying holdings across these ETFs. Holding two or three of these ETFs is just increasing exposure to the same group of large US technology companies.

Why understanding your ETF matters

ETFs are powerful investment tools. They can provide low-cost access to markets that would otherwise be difficult or expensive to invest in individually.

All of the ETFs listed above are passive investments. This means there are no active decisions behind what these ETFs hold, and instead they track indexes. This often means that the ETFs are cheaper, but there are no controls for exposure and concentration. It’s important that investors understand the indexes that are being tracked, the exposure they provide and how they behave through different market conditions.

All of these ETFs have concentration risk – either to geography, sector or industry. This does not mean that investors should avoid these ETFs. In many cases, they remain sensible long-term building blocks for portfolios. It is important, however, to understand the risks, how they interact with the other parts of your portfolio and how it connects to achieving your portfolio goals.

You can conduct this exercise with any ETF you hold by searching for it on Morningstar, and navigating to the ‘Portfolio’ page. You’ll be able to access our Portfolio X-Ray tool that allows you to understand the exposures in your ETF.

Want to learn more? My colleague Sim has written on what our analysts think of the top three largest ETFs.

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