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The Vanguard Australian Shares Index ETF is the most sought-after ETF on the ASX by a mile. But why?
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Sebastian Bowen has been a Motley Fool contributor since late 2018. Sebastian found his passion for writing and educating others about shares and all things finance after completing his studies in political, economic and social science and enjoys bringing this passion to life at the Fool. His investment philosophy is a simple one – buying high-quality companies at prices that make sense. When he’s not researching his next investment at all hours of the morning, Sebastian enjoys classic movies and likes to unwind with a good book, newspaper or record.
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When we take a look at the most popular exchange-traded funds (ETFs) on the ASX, there is one clear favourite amongst investors. That is the Vanguard Australian Shares Index ETF (ASX: VAS).
As of 31 July, the Vanguard Australian Shares ETF had just over $11 billion in funds under management. That's more than double that of the iShares S&P 500 ETF (ASX: IVV), which presently has just over $5 billion in funds under management.
The next closest ASX-based index fund in terms of popularity is the SPDR S&P/ASX 200 Fund (ASX: STW). It currently has roughly $4.5 billion in funds under management.
So what makes the Vanguard Australian Shares ETF so wildly popular that it runs rings around the other ASX ETFs on the market?
Well, it could come down to a few factors.
Why is the Vanguard Australian Shares ETF so popular?
The first is the Vanguard Australian Shares ETF's unique structure. It remains the only index fund on the ASX boards that covers the S&P/ASX 300 Index (ASX: XKO), rather than the more widely covered S&P/ASX 200 Index (ASX: XJO).
The ASX 300 holds all of the shares that the ASX 200 does. But it also holds an additional 100 or so companies from the smaller end of the market. Perhaps ASX investors enjoy this increased diversification.
This has the byproduct of slightly reducing investors' exposure to the largest shares on the ASX – your BHP Group Ltd (ASX: BHP)s and the big four banks. As most ASX investors know, banks and miners are the two largest sectors on the ASX. So it's possible investors appreciate less concentration in these sectors.
There's also performance to consider.
As of 31 July, the Vanguard Australian Shares ETF has averaged a return of 4.48% per annum over the past three years, and 8.12% per annum over the past five.
In contrast, the SPDR S&P/ASX 200 Fund has returned an average of 4.25% over the past three years, and an average of 7.92% over the past five.
That's not a huge disparity. But it is probably enough to convince investors that Vanguard's ASX 300 approach is the right one to take.
Bogle's legacy
A final factor to consider is the reputation of Vanguard itself. Vanguard is a US-based fund manager. Its late founder Jack Bogle was one of the most respected investors in the world and attracted heavy praise from none other than the legendary Warren Buffett himself.
Bogle set up Vanguard as a not-for-profit entity owned by its investors. As such, it has historically often offered the lowest fees in the ETF industry. Bogle also is widely credited with inventing the index fund itself. As such, for many investors, Vanguard has unbeatable bona fides when it comes to offering ETF products.
So it's probably a combination of these factors that has led the Vanguard Australian Shares Index ETF to its place at the top of the ASX ETF pile today.
