What are Exchange-Traded Funds (ETFs)? Exchange-traded funds (ETFs) have become one of the most accessible and cost-effective options for ETF investments in Australia. Since their introduction to the Australian Securities Exchange (ASX) in 2001, when only two ETFs were available, the market has grown significantly, now offering over 200 ASX ETF investment options covering a wide range of sectors, regions, and asset classes.
ETFs are popular because they allow investors to build diversified portfolios with just a few trades, making them ideal for both beginners and experienced investors. Whether you're interested in Australian shares, U.S. tech giants, global markets, or even niche sectors like cryptocurrency, there's likely an ETF listed on the ASX that suits your investment goals.
In this article, we’ll explore what ETFs are, why they're increasingly favoured by Australian investors, the difference between ETFs vs managed funds, the pros and cons of investing in them, and a roundup of some of the best ETFs to invest in ASX currently trading on the market.
Exchange-traded funds (ETFs) on the Australian Securities Exchange (ASX) are investment funds that let you buy and sell units like regular shares. These funds pool investors’ money to hold a basket of underlying assets, such as Australian shares, international stocks, bonds, or commodities, based on the fund’s strategy.
Unlike traditional managed funds priced once daily, ETFs trade intraday, meaning their unit prices fluctuate during ASX trading hours just like any listed company. Most ASX ETF investment options use a passive, index-tracking approach. They aim to replicate the performance of a benchmark index, such as the S&P/ASX 200, MSCI World ex-Australia, or a commodities index, by directly holding all or a representative sample of the index components.
Some ETFs are “actively managed,” with fund managers selecting holdings and aiming to outperform their benchmark, though these tend to charge higher fees. ETFs are open-ended: when demand rises, new units are created; when it falls, units are redeemed. This mechanism helps keep their market price close to the net asset value (NAV) of the underlying assets.
Each ETF has an ASX ticker, settles on a T+2 basis, and can be bought through brokers or platforms just like shares. By holding ETFs, investors gain exposure to diversified asset portfolios in a single trade, whether that’s the top 200 Australian companies, global healthcare firms, or physical gold.
Australian investors increasingly favour ASX-listed ETFs for several compelling reasons:
Low Costs: ETFs often charge lower management fees (MERs) compared to equivalent managed funds. For instance, Vanguard’s Australian Shares ETF (VAS) charges around 0.07% per annum, significantly less than many traditional managed funds. With lower fees, investors keep more of their returns.
Instant Diversification: Buying a single unit of an ETF provides exposure to an entire index or sector, be it the ASX 200, global equities, or specific themes like cybersecurity. This reduces individual stock risk and smooths out volatility.
Transparency: ETFs publish their NAV daily and disclose holdings regularly, allowing investors to know exactly what they own. This transparency ensures price accuracy and helps investors monitor exposure and costs.
Liquidity and Ease of Trading: ETFs trade continuously throughout ASX hours, enabling easy entry and exit at market prices. Settlement is rapid, typically two business days (T+2), just like shares.
Access to Diverse Markets: ASX ETF investment options offer access beyond domestic shares. Australians can invest in global equities, sector-specific ETFs (like tech or biotech), commodities, and even cryptocurrencies, all via ASX listings.
Tax Efficiency: ETFs often use in-kind creation and redemption mechanisms, reducing capital gains events and improving tax efficiency compared to traditional managed funds.
Popular and diverse ETF choices including:
MOAT invests in about 50–60 U.S. companies that Morningstar research considers having long-term competitive advantages, or “moats.” It tracks the Morningstar Wide Moat Focus NR AUD Index in Australian dollars. The fund applies a value investing lens, investing in firms trading below Morningstar’s estimated fair value, and charges a management fee of 0.49% per annum. MOAT offers annual dividends and operates as an open-ended ETF with intraday liquidity on ASX. Its focus on durable business moats makes it one of the best ETFs to invest in ASX for investors seeking quality U.S. exposure.
CRYP provides exposure to global companies in the crypto economy by tracking the Bitwise Crypto Innovators Index. It includes firms involved in crypto mining hardware, exchanges, blockchain services and more. The fund is designed for those keen on cryptocurrency’s growth without holding digital assets directly. CRYP typically has no yield and is suitable for growth-focused investors who understand the higher sector volatility, similar to speculative stocks.
VAS offers instant diversification across the top 300 ASX-listed Australian companies, tracking the S&P/ASX 300 Index. It charges a low management fee of 0.07% per annum and provides long-term capital growth plus dividend income with franking credit benefits. One of Australia’s most traded ETFs, VAS appeals to investors seeking broad exposure to domestic equity at minimal cost.
VGS allows Australians to invest in around 1,300 large and mid-cap companies across developed markets outside Australia. It tracks the MSCI World ex-Australia Index and charges a management fee of 0.18% p.a. With no currency hedging, it includes foreign exchange risk. VGS has become a core international equity building block for diversified portfolios.
IVV tracks the S&P 500 Index, offering exposure to 500 of the largest U.S.-listed companies. Managed by BlackRock, it is low cost, tax efficient, and aimed at long term growth investors. IVV is among the top ASX ETFs in assets under management and supports dividend distributions. It suits those seeking reliable exposure to U.S. equity markets through a transparent and widely recognised benchmark.
Advantages of investing in ETFs on the ASX include:
Instant Diversification: Investing in a single ETF provides exposure to a wide range of assets, such as the top 300 companies in Australia or global equities, spreading risk across many holdings. This approach reduces reliance on any one stock and lowers individual security risk.
Low Entry Costs: ASX-listed ETFs have minimal management fees (MERs), often well below 0.20% per annum, significantly cheaper than many active managed funds. There’s typically no minimum investment beyond the share price, making ETF investments in Australia accessible to all investors.
Liquidity and Flexibility: ETFs trade like shares during ASX hours, allowing investors to buy and sell intraday at market prices. They also support advanced order types like limit and stop-loss, enabling strategic trading and quick reactions to market movements.
Tax Efficiency for Long-Term Investors: Thanks to in-kind creation/redemption mechanisms, ETFs avoid frequent internal trading. This often leads to fewer capital gains distributions than mutual funds, delaying tax liabilities until investors sell units.
Potential drawbacks and risks of ETF investing include:
Market Volatility: ETFs are subject to broad market swings. Volatility depends on the asset class, for instance, broad equity ETFs may be less volatile than sector-specific or crypto-related ones.
Tracking Error: ETFs may not perfectly mirror their index due to fees, cash holdings, or dividend timings. Even well-managed Australian ETFs can deviate by several basis points monthly. Over time, this divergence can affect returns.
Sector Overexposure: Some ETFs concentrate holdings in a few large companies within a sector. That concentration amplifies single-stock or sector risk, and can skew portfolio balance if not managed carefully.
Foreign Currency Risk: International ETFs expose Australian investors to foreign exchange fluctuations. Unhedged ETFs may gain or lose due to currency movements, independent of the performance of the underlying asset.
When evaluating whether ASX ETF investment options are a smart investment for you, it’s crucial to consider how they align with your financial goals, risk tolerance, and investment horizon. ASX ETFs offer a low-cost, diversified pathway into a wide array of markets, from Australian shares to global equities, bonds, commodities, and thematic sectors.
Thanks to passive management and intraday trading, these funds deliver cost efficiency, transparency, and flexibility that appeal to both beginners and seasoned investors. However, reliance on broad index-tracking also exposes you to systemic market risks. ETFs reflect the ups and downs of underlying markets, and during sharp downturns, diversification won’t prevent losses.
Additionally, passive ETFs can distort market dynamics, for example, the surge in prices of heavily weighted stocks like Commonwealth Bank has been linked to passive fund inflows. Tracking errors, sector concentration, and currency fluctuations in international ETFs are further considerations regarding the risks of ETF investing.
If you're a long-term investor seeking diversified, low-cost exposure and are comfortable with market cycles, ETF investments in Australia can be a smart choice. But if you prefer actively selected investments, aim to beat the market, or want to avoid concentrated index effects, then exploring active funds or direct stock investments may be more appropriate.
ASX-listed ETFs have transformed the way Australians access financial markets. By offering low-cost, diversified, and transparent investment vehicles, ETFs have become a central component of modern portfolios. They deliver instant exposure to a wide array of asset classes, from Australian and international equities to bonds, commodities, and thematic sectors.
For long-term investors with moderate risk tolerance, ETFs offer a compelling blend of simplicity and efficiency. Yet, they are not a one-size-fits-all solution. ETFs carry market risk and may amplify sector imbalances, tracking discrepancies, and currency fluctuations in global funds. Large-cap concentration and passive inflows, such as those suspected in Commonwealth Bank’s dramatic rise, highlight potential market distortions.
Ultimately, whether ASX ETF investment options are wise for you depends on your financial goals, investment timeframe, and comfort with market volatility. For investors seeking diversified exposure with minimal effort, they’re often a smart choice. Meanwhile, those aiming for active stock selection or more niche strategies may prefer managed funds or direct equity investment.
What is the key difference between an ETF and a managed fund? The choice between ETFs vs managed funds comes down to structure: An ETF trades on the ASX like a share and typically tracks an index, while managed funds are unlisted and actively managed with prices set daily, not continuously.
Can ETFs be traded throughout the day? Yes, ETFs offer intraday pricing and liquidity thanks to market makers and authorised participants, helping ensure ETF prices remain close to net asset value.
Do ETFs pay dividends? Many do. Dividends from underlying holdings are usually passed on to investors in periodic distributions, with some ETFs offering automatic reinvestment plans.
Are international ETFs exposed to currency risk? Yes. ETFs tracking overseas assets without currency hedging can be affected by AUD exchange rate changes, which impact returns independently of underlying asset performance.
When is the best time to buy or sell an ETF? It’s generally advised to avoid trading within the first 10–30 minutes after market open or during the closing auction, as bid-ask spreads tend to widen and prices may diverge from NAV.
