The growing prevalence of ETFs

Both in Australia and in markets around the world, ETFs have become increasingly popular investment options over the past few years. The ASX’s 2023 Australian Investor Study found that 20% of people surveyed were investing in ETFs – a jump of 5% from 2020. And, rather interestingly, the most popular assets on Pearler in 2023 were all ETFs and no individual stocks.

For investors – whether they’re first-timers or old hands – there are numerous benefits to investing in ETFs :

• They offer diversified exposure to numerous assets in a single trade. ETF assets can include stocks, bonds, commodities, currencies and real estate, among others
• They’re able to be bought and sold on the ASX, much like shares – making them flexible and highly liquid
• They’re straightforward and transparent, making them a simple way to invest
• Compared to traditional managed funds, they generally have a lower fee structure

10 popular ETFs on the ASX

The Australian ETF industry is vast and varied. From thematic ETFs to dividend ETFs , there are all kinds of exchange-traded funds to choose from on the Australian Stock Exchange. (Side note: it's technically called the Australian Securities Exchange , but it's referred to by many as the Australian Stock Exchange for simplicity’s sake.) In fact, there are more than 200 in the Australian ETF market, across seven asset classes.

While none of these are recommendations, the below ETFs are some of the more popular options among Australian investors.

Vanguard Australian Shares Index ETF (VAS)

VAS is an Aussie ETF that tracks the return of the S&P/ASX 300 Index, which measures around 300 of the top securities on the ASX. Think large companies like BHP, the Big Four banks and Aussie conglomerate Wesfarmers.

The ETF is a popular one because it provides straightforward exposure to many of the biggest companies in a single transaction. It’s also one of the ASX’s lowest-cost ETFs and provides dividends to investors, too.

Vanguard MSCI Index International Shares ETF (VGS)

VGS’s popularity lies in the fact that it allows investors to put their money into international markets without the need to navigate the challenges of foreign investing . (This efficiency is another potential advantage of investing in ETFs.)

It tracks the MSCI World ex-Australia index, which covers 22 of the biggest developed markets – like the US, UK and Japan. There are both large and mid-cap stocks within VGS, including Apple, Google, Tesla and JPMorgan Chase & Co.

Vanguard Diversified High Growth Index ETF ( VDHG)

Unlike most other ETFs, which track the performance of an index, currency or commodity, VDHG actually invests in other ETFs. In fact, VAS and VGS are two of its holdings.

However, it’s predominantly focused on high-growth assets – meaning it’s favoured among those who are looking for higher returns. As with growth stocks, though, growth-focused ETFs do come with a higher level of risk.

iShares S&P 500 ETF ( IVV)

IVV is solely focused on the US market, making it valued by investors who want to invest in the US but don’t necessarily want to pick individual stocks.

It tracks the performance of the S&P 500 Index, which represents the top 500 companies in the States. These include tech giants such as Apple and Google, as well as companies in finance, healthcare, energy, and consumer goods.

BetaShares Australia 200 ETF ( A200)

A bit like VAS, this local ETF tracks the top companies in Australia. However, it follows the performance of the Solactive Australia 200 Index. And, as its name suggests, it covers 200 of them instead. The top holdings within the ETF are more or less the same.

For investors, one of the primary advantages of A200 is that it has low fees and is currently one of the cheapest ETFs on the ASX.

BetaShares Nasdaq 100 ETF ( NDQ)

NDQ tracks the performance of the NASDAQ-100 Index, which covers a mix of Nasdaq-listed securities from around the world. These include companies in the US, as well as non-financial ones in international markets. NDQ is highly tech-focused, but does include numerous companies from other sectors.

For investors, it’s often perceived as a cost-effective way to invest in international markets – particularly the high-growth sectors within them.

BetaShares Global Sustainability Leaders ETF (ETHI)

ETHI is an example of a sustainability ETF . It tracks the performance of an index focusing on companies that have been identified as ‘Climate Leaders’. Effectively, this means they’ve been screened for various ESG criteria , including their exposure to fossil fuels and their consistency with responsible investing.

Ethical investing, or ESG, is a prevailing investing strategy among investors looking to put their money behind their beliefs. The advantage of an ETF like ETHI is that it gives these investors diversified exposure to ethical companies in a single trade.

Global X Battery Tech & Lithium ETF ( ACDC)

In a similar vein, ACDC invests in companies involved in lithium, one of the most crucial materials in electric vehicle (EV) manufacturing. It covers all stages of the lithium cycle, including mining, refinement, battery production and EV assembly.

With demand for lithium expected to double between 2025 and 2030, many investors choose ETFs like ACDC to get behind the industry as it takes off.

Vanguard US Total Market Shares Index ETF ( VTS)

VTS tracks the performance of the CRSP US Total Market Index, which represents the entire US share market. There are more than 3,500 companies within it, ranging from micro to mega caps.

VTS is popular because it allows investors to get into the US market without the complexities associated with it. Plus, it gives them exposure to the whole share market and numerous industries that are historically underrepresented in Australia (like tech).

Vanguard Ethically Conscious International Shares Index ETF ( VESG)

VESG is another ethical ETF. However, it chooses its holdings by excluding companies invested in things like fossil fuels, nuclear power, alcohol, tobacco and weapons, as well as those engaged in controversial conduct. It tracks the performance of the FTSE Developed ex Australia Choice Index, meaning these companies operate in developed countries worldwide except Australia.

Like ETHI, VESG is an ideal option for those who want to invest in ethical companies in one trade.

Choosing the right ETF

Articles like this one can be a good starting point for choosing the right ETFs to invest in. But, you should also do your own research into the various ETFs available, looking at:

• Their underlying assets
• Performance history (remembering that past performance isn’t necessarily an indicator of future performance)
• Expense ratios (i.e. their fees )
• Their success in tracking their particular indexes (sometimes the ETF’s value doesn’t correlate with its associated index. This is known as a tracking error, and it can be a fair indication of an ETF’s risk)

Ultimately, the decision on what to invest in is yours – and it depends on a range of factors. These include your financial goals , investing horizon (how long you want to invest), risk tolerance, and current financial circumstances. Weigh these up carefully before picking your investments, or even consider reaching out to a licensed financial adviser for tailored support.