Young & Invested: What we think about the biggest ETFs on the ASX
Insight into the funds that are probably in your portfolio.
Mentioned: Vanguard Australian Shares ETF (VAS), iShares S&P 500 ETF (IVV), Vanguard MSCI Intl ETF (VGS), BetaShares Australia 200 ETF (A200)
Welcome to my column, Young & Invested, where I discuss personal finance and investing for Gen Z and Millennials.
This column aims to be a resource for young investors navigating an ever changing financial, political and social landscape as they try to build wealth. Tune in every Thursday for the latest edition.
Edition 58 (revisited)
Halloween is supposed to be scary.
Underwhelming costumes aside, the most terrifying things I encountered were the lengthy queues on Oxford Street.
The next day, I hit the shops for discount chocolate, after calling time on my fifth attempt at a sugar cleanse this year. It’s difficult to live in Sydney without becoming an insufferable health fanatic.
Unsurprisingly, the classics had already been ransacked from the shelves. What remained was a graveyard of novelty flavours and other new-age monstrosities that, frankly, shouldn’t exist. It was a good reminder that not everything on the shelf deserves a place in your basket. After all, the classics are classics for a reason.
The ETF market isn’t much different. In the spirit of rejecting the latest thematic fever dreams, I looked at some of the biggest ETFs on the ASX and what our analysts think of them.
How we rate funds
The ETF universe is expanding quickly and investors now face the prospect of forming a portfolio by choosing from hundreds of products.
It’s not exactly a simple decision‑making environment, which is why having a consistent framework to assess and compare funds becomes crucial.
The Morningstar Medalist Rating is a forward‑looking assessment of how likely a fund is to outperform on a peer-relative basis. Our analysts assess people, process, parent and price to ascribe a final rating. Funds can receive Gold, Silver, Bronze, Neutral, or Negative ratings.
Gold, Silver and Bronze mean that we expect the fund to outperform. Neutral implies the odds are roughly balanced and Negative means we believe the fund has meaningful obstacles to delivering competitive long‑term returns.
Vanguard Australian Shares ETF VAS
- Morningstar Medalist Rating: Bronze
- Morningstar Category: Equity Australia Large Blend
- Total Cost Ratio: 0.07% (Prospective)
- Assets under management: 26.7 Bil (AUD)
Vanguard’s Australian Shares ETF VAS is the largest fund on the ASX and a notable feature of many investor portfolios.
Tracking the ASX 300, VAS provides broad exposure to the domestic equity market at a reasonable cost of 0.07% p.a.The fund is dominated by the financials and resources sector and therefore closely tied with the Australian and Chinese economy.
Sector and company concentration is incredibly high in Australia. This results in a rather top-heavy portfolio where BHP and the big four banks appear to be doing most of the heavy lifting (~33% of holdings).
Notably, VAS also emphasises a larger tilt towards small and micro-cap companies (6.67%) than the category’s benchmark, the ASX 200 (3.64%).
While the weighting isn’t enough to change the character of the fund, but it does give VAS a marginally broader reach across the Australian equity spectrum. This might appeal to investors who want more exposure to the smaller end of the market without venturing into a dedicated small-cap product.
Our analyst believes the concentration of VAS creates plenty of room for active managers to potentially add value, but in practice the index has still been tough to beat after fees.
Because the ASX 300 and ASX 200 overlap heavily, VAS’ long‑term performance ends up looking very similar to the category benchmark. Over the past ten years, VAS has delivered 9.30% annualised vs the category index at 9.43%.
Overall, we believe the fund remains an acceptable option for investors seeking passive Aussie equity exposure.
Vanguard MSCI Index International Shares ETF VGS
- Morningstar Medalist Rating: Gold
- Morningstar Category: Equity World Large Blend
- Total Cost Ratio: 0.18% (Prospective)
- Assets under management: 18.6 Bil (AUD)
VGS tracks the MSCI World ex Australia Index through a full replication strategy. The underlying portfolio contains over 1,200 companies across 22 developed markets. The index aims to cover 85% of the adjusted market capitalisation of each country.
This approach naturally tilts the portfolio toward the largest and most established companies, many of which carry Morningstar Economic Moat Ratings that indicate durability and a competitive edge. While this can lead to regional or sector concentration, it largely reflects the investable universe.
The index is dominated by US equities which account for ~74% of assets. However, the footprint of US multinationals means the underlying economic exposure is far broader than the headline may suggest.
Stock‑level diversification is reasonably and the top 10 positions represent just over a quarter of the portfolio.
Concerns around concentration are eased by the often diversified business structure of index constituents that does not find itself reliant on a single product, service, or market to determine success.
Vanguard’s execution further supports tight tracking. The team manages trading around rebalances to avoid unnecessary costs, uses futures to keep cash fully invested, and returns all securities‑lending revenue to investors which not only adds incremental value but also a point of differentiation from many peers.
Recent performance has been driven largely by US tech, particularly from AI-related enthusiasm where active managers have been underweight. While short‑term results may fluctuate as sentiment shifts, we think the strategy should serve patient investors.
The market-cap-weighted approach to determine position sizing is a tried-and-true approach to investing in developed markets. Overall, we believe that VGS provides efficient exposure to global equities at a compelling price of 0.18% pa.
iShares S&P 500 ETF IVV
- Morningstar Medalist Rating: Gold
- Morningstar Category: Equity North America
- Total Cost Ratio: 0.04% (Prospective)
- Assets under management: 14.7 Bil (AUD)
As the name implies, iShares S&P 500 ETF tracks the flagship S&P 500, which selects 500 of the largest US stocks, comprising ~80% of the US equity market and weights constituents by market cap.
The fund is currently dominated by a handful of mega‑cap technology names, which account for roughly a third of the portfolio. Its market‑capitalisation‑weighted approach is well suited to the highly efficient US market where new information is rapidly priced in.
Market-cap weighting naturally adjusts to price changes without frequent rebalancing, generating lower trading costs. Further, low fees such as the 0.04% p.a. for IVV, give large-blend index funds like this a long-term performance advantage over most actively managed peers.
When a few richly valued companies or sectors power most of the market gains, market-cap weighting may overexpose the strategy to the fluctuations of one stock or sector. But this is not a fault in design, as it simply reflects the market’s composition.
We think the combination of broad diversification, minimal cash holdings and a very low fee has supported strong long‑term results. IVV has returned ~16% annualised over the past decade.
While concentration risk is an inherent feature of the modern U.S. market, the fund’s disciplined, rules‑based structure ensures investors capture the market’s overall growth without relying on active stock selection.
Our analyst believes the fund is well-positioned to reap the rewards if the US market continues to produce solid long-term gains. Furthermore, they see IVV as the best-in-class option for large-cap US stock exposure.
Betashares Australia 200 A200
- Morningstar Medalist Rating: Bronze
- Morningstar Category: Equity Australia Large Blend
- Total Cost Ratio: 0.04% (Prospective)
- Assets under management: 11.6 Bil (AUD)
A200 ETF tracks the lesser-known Solactive Australia 200 Index. This closely resembles more established benchmarks like the ASX 200 index. Key features like market liquidity are comparable, and in essence, both indexes are driven by market-cap methodologies offering exposure to 200 of Australia’s largest companies.
A200’s appeal lies in its simplicity and efficiency at capturing the Australian equity opportunity set. It also comes at a management fee of 0.04%, placing it in the cheapest quintile of its category.
Much like VAS ETF, A200’s portfolio is heavily shaped by the structure of the local market, with financials and basic materials accounting for more than half of assets. The top ten names make up at least 40%, including BHP, Commonwealth Bank, National Australia Bank, and Westpac.
Approximately 85% of the portfolio is typically exposed to cyclical and sensitive sectors. This concentration, combined with the index’s strong tilt toward cyclical sectors, means performance is closely tied to the domestic economy and those it relies on.
A200 leans slightly more toward giant-cap companies than the category average with ~40% of assets in the very largest names vs 35% for the category.
There is also a notable difference on the tail end as A200 holds noticeably less small and micro‑cap companies than the category average, keeping it more tightly focused on established, liquid companies.
Betashares has delivered efficient execution, with tight spreads and low costs, with performance since inception proving a significant hurdle for peers to beat on a net-of-fees basis.
We believe A200 presents a sound choice for investors in pursuit of cost-effective exposure to domestic equities.
