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Is this ASX ETF the perfect companion to Vanguard’s VAS?

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I love ASX index funds, the Vanguard Australian Shares Index ETF (ASX: VAS) in particular. This ASX exchange-traded fund (ETF) gives Australian investors easy access to a simple, market-wide portfolio of the 300 largest stocks that are listed on the Australian markets.

That’s everything from Commonwealth Bank of Australia (ASX: CBA), Coles Group Ltd (ASX: COL) and Telstra Group Ltd (ASX: TLS) to Ampol Ltd (ASX: ALD), AGL Energy Ltd (ASX: AGL) and JB Hi-Fi Ltd (ASX: JBH).

Historically, ASX index funds, VAS included, have delivered decent long-term returns for Australian investors. To illustrate, VAS has hit an average of 8.97% per annum since its inception in 2009. That’s as of 31 March, and includes both capital growth and dividend returns.

This is a decent opinion, at least in my opinion, for most stock market investors. I own VAS units myself. However, this ETF does have a well-documented weakness. It is a fund that is very heavy on two types of companies – banks and miners. Thanks to the top-heavy nature of the ASX, a significant portion of every dollar that goes into VAS ends up with a bank or a miner.

To prove it, let’s look at VAS’ current holdings. At present, CBA, as the ASX’s largest stock, takes more than $10 of every $100 invested into the Vanguard Australian Shares ETF. Another $9.50 or so heads straight to mining giant BHP Group Ltd (ASX: BHP) stock, and another $15 finds its way to the other three major ASX banks, plus Macquarie Group Ltd (ASX: MQG).

Why ASX investors should add this tech ETF to VAS

That might be fine for some Australian investors, particularly those who appreciate a fat, fully franked dividend. But it might leave others longing for a little more pep and vigour. The contrast to the United States market, which is famously dominated by innovative tech stocks like NVIDIA, Amazon and Alphabet, is rather stark. Back on the ASX, tech stocks contribute a miserly 2.1% to VAS’ portfolio.

That’s why I think VAS is perfectly supplemented by another ASX ETF. It is none other than the BetaShares S&P/ASX Australian Technology ETF (ASX: ATEC).

This ASX ETF is jam-packed with the ASX’s most successful tech stocks, as well as companies that could be described as tech-adjacent. Its top holdings include:

All names that have made waves in recent years.

Now, the ASX tech sector is in the midst of a rather nasty slump. ATEC units, at around $22 today, are at an 18-month low. But this could well prove to be a decent entry point if sentiment swings back around. All in all, I think this ASX ETF is a perfect choice if you wish to supplement a traditional ASX index fund like VAS with some of the ASX’s most exciting innovators.

The post Is this ASX ETF the perfect companion to Vanguard’s VAS? appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has positions in Vanguard Australian Shares Index ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group, Technology One, WiseTech Global, and Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Pro Medicus. The Motley Fool Australia has positions in and has recommended Macquarie Group, Telstra Group, WiseTech Global, and Xero. The Motley Fool Australia has recommended BHP Group, CAR Group Ltd, Pro Medicus, and Technology One. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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