Duncan Burns

Vanguard has expanded Australian investors’ access to the world’s largest and most influential equity market, unveiling a new suite of S&P 500® Index funds that provide simple, low‑cost and trusted access to the innovation and long‑term growth of the U.S. economy.

The S&P 500® is recognised as the leading benchmark for large cap U.S. equities, capturing 500 of the country’s largest and most successful listed companies, including tech leaders like Nvidia, Apple and Amazon and major household names like Walmart, JPMorgan Chase and Johnson & Johnson.

Duncan Burns, Asia‑Pacific Head of Investment Management for Vanguard Capital Markets, said the locally domiciled funds give Australian investors an efficient way to access the flagship U.S. stock market index through one of the world’s most trusted investment managers.

“These new Australian‑based S&P 500® funds offer investors a straightforward, low-cost entry point to the world’s largest economy,” Mr Burns said.

“An S&P 500® allocation can also serve as a tactical satellite position within a broadly diversified portfolio, offering targeted exposure to the U.S. stock market.”

Vanguard will launch three options to give investors choice in how they invest in the S&P 500®:

• Vanguard S&P 500 US Shares Index ETF (ASX: V500) — an unhedged ETF.
• Vanguard S&P 500 US Shares Index (Hedged) ETF (ASX: V5AH) — a currency-hedged ETF designed to reduce the impact of foreign exchange movements on returns for Australian investors.
• Vanguard S&P 500 US Shares Index Fund (unlisted) — for investors who prefer to invest through an unlisted fund structure.

“By offering both hedged and unhedged options, as well as ETF and unlisted fund structures, we’re giving investors greater choice in how they access that exposure in a way that suits their goals and preferences,” Mr Burns said.

Hamish Preston, Head of U.S. Equities at S&P Dow Jones Indices, said: “S&P Dow Jones Indices is delighted to license the S&P 500® to Vanguard for its new series of index funds, offering Australian market participants direct exposure to the U.S. equity market.”

“For more than six decades, the S&P 500® has been the premier benchmark for large-cap U.S. equities. S&P DJI’s licensing relationship with Vanguard adds to the S&P 500®’s substantial ecosystem and it provides investors with more ways to gain exposure to U.S. equities.”

V500 and V5AH have management fees of 0.07% p.a. and 0.09% p.a. respectively, while the unlisted managed fund has a management fee of 0.16% p.a.

The ETFs will be available for purchase on the ASX from March 4, while the unlisted managed fund can be accessed via Vanguard’s Personal Investor platform.

Vanguard continues to cement its position as Australia’s largest ETF manager with more than $90 billion of ETF funds under management in the country as at 31 January 2026.

“Our founder Jack Bogle launched the world’s first S&P 500® index fund for retail investors 50 years ago. That same philosophy of broad, low-cost market access underpins the products we’re bringing to Australian investors today,” Mr Burns said.

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Duncan Burns

New data from Vanguard shows index funds have created significant price pressure in the funds management industry and have already helped save Australian investors billions of dollars in investment costs.

The research by Vanguard’s Investment Strategy Group has estimated investors in Australian domiciled funds have collectively saved $14.4 billion since 1998 by investing in low-cost index funds including exchange traded funds (ETFs).^[1]

This reflects ongoing reductions in the asset-weighted expense ratios of Australian index funds, which averaged 22.8 basis points at the start of 2024. This compared with an average asset-weighted expense ratio for Australian active funds of 90.6 basis points.

Vanguard’s research suggests there has been a tethering effect when it comes to fund costs, with both active and index average expense ratios having decreased over time.

Yet, despite costs having come down, the average difference in management costs between active and index funds is still substantial.

To calculate the amount investors have saved, Vanguard looked at the total assets held in index funds and multiplied this by the difference between active and index fund expense ratios for Australian domiciled funds.

Passive is massive for investors

Index funds now account for more than $700 billion of assets under management in Australia, which included $168.2 billion invested across 243 index-tracking ETFs at the end of July.

This equated to 81% of the Australian ETF industry’s total assets under management. By contrast, $40.55 billion (19%) was invested across 114 active ETF products.

Vanguard’s research shows index funds have captured around 86% of all ETF investor inflows on the Australian Securities Exchange this year.

That is, out of around $17.55 billion in total ETF inflows over the first seven months of 2024, $14.99 billion had flowed into ASX-listed index funds.

Duncan Burns, Vanguard’s Chief Investment Officer, Asia-Pacific, commented: “The take-up of index funds by Australian investors over the last 26 years has been phenomenal. By introducing significant competitive price pressure into the Australian industry, index funds have helped to drive down costs for all investors.

“Higher investment costs diminish returns, especially for active managers who aim to outperform markets. The higher the investment costs, the higher the odds of market underperformance.

“A high percentage of investors in active funds underperform index benchmarks because their returns are eroded by high management costs.

“Vanguard’s research on cost savings sends a powerful message. Australian investors are increasingly recognising the performance advantages of being invested in low-cost index funds and the disadvantages of investing into high-cost fund alternatives.”

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Notes:
[1] Data are as of December 31, 2023  for Australian domiciled funds using annual report net expense ratios. In this hypothetical example, data assume index investors would have invested in active funds had index funds not existed. Data reflect the difference between the cumulative expense ratio fees paid by investors owning open-end funds and what they would have paid if index funds didn’t exist. Investor savings are calculated as: (asset-weighted expense ratio of actively managed funds x industry assets) – (industry asset-weighted expense ratio x industry assets). Annual report net expense ratios are defined as the percentage of fund assets used to pay for operating expenses and management fees, including distribution fees, administrative fees, and all other asset-based costs incurred by the fund, except brokerage costs. Sources: Vanguard calculations, using data from Morningstar, Inc

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Duncan Burns

Fixed income ETFs attracted the most cash flow of any asset class in the first half of 2023, according to data recently released by the ASX and Vanguard.

Australian bond ETFs received A$1.74 billion in H1 (Q1: A$499 million, Q2: A$1.24 billion), up 54 per cent since H1 2022.

International bond ETFs received A$763 million in H1 (Q1: A$448 million, Q2: A$315), up more than twofold (215 per cent) since H1 2022.

Collectively, net flows into Australian and global fixed income ETF products totalled A$2.5 billion over the first half of the year, outpacing net flows into Australian and international equity ETF products which recorded approximately $1billion over the same period.

“Although rising interest rates have created short-term pain for Australian investors, they have helped to improve long-term return expectations for bonds,” said Duncan Burns, Vanguard’s Head of Investments, Asia Pacific.

“While bond prices typically reprice lower when interest rates rise, investors with a sufficient long-term investment horizon will ultimately be better off.

“Investors are also flocking to bonds in their search for diversification and income as yields continue to stabilise (a signal that investors are becoming more optimistic), presenting an attractive alternative to holding cash which has generally underperformed bonds post rate hike cycles.

“Interestingly, despite the strong first half rally in global equity markets, demand for domestic fixed income – particularly bonds with high investment grade credit ratings – were the clear winner”.

The Vanguard Australian Shares High Yield ETF (VHY) was Vanguard’s most popular product in H1, attracting A$302 million in flows.

With $45 billion in assets under management for Australian investors, Vanguard remains the largest ETF issuer on the market.

ETF uptake continues to grow

The Australian ETF market continued to grow in H1, recording A$146 billion in AUM as at the end of June 2023, up 20 per cent year on year.

According to ASX’s 2023 Investor Study, ETFs are “one of the most affordable ways to enter the investment market and diversify holdings”, with 20 per cent of all Australian investors owning an ETF (up from 15 per cent in 2020).

“ETFs have so many in-built benefits that can make investing simpler and more cost effective for all types of investors,” said Mr Burns.

“For example, less than half of Australian investors believe they hold a diversified portfolio, with many not knowing what investments to select nor how to achieve adequate diversification. This is where ETFs can step in and play a critical role.

“The inherent diversification benefits of ETFs – where one trade can provide investors with exposure to not only hundreds of securities, but also to different markets and asset classes – reduces the need for investors to pick and choose winning stocks, and the costs that goes with buying individual securities.

“Education remains a focus for the ETF industry to help boost investor confidence but it’s encouraging to see ETFs growing in popularity amongst retail investors in particular”.

New Head of ETF Capital Markets

Vanguard has appointed Adam DeSanctis as Head of ETF Capital Markets for the Asia Pacific region.

Adam joined Vanguard in 2015 and was most recently a specialist in the U.S. ETF Capital Markets team. Adam holds an MBA from Columbia Business School and a B.A. in Economics from Wesleyan University. He is a CFA Charterholder and a member of the CFA Society of Philadelphia.

Reflecting Vanguard’s rotational culture for developing leadership expertise, Minh Tieu, previous Head of ETF Capital Markets, has moved to Vanguard’s headquarters in Malvern, PA to assume the role of Head of U.S. Equity Operational Risk.

“We are delighted to welcome Adam to the Australian investment management team and the wealth of experience he brings, and wish Minh every success as he embarks on his new role in our US business”, said Mr Burns.

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