Why we’re neutral on this popular Aussie ETF
How index construction rules create a suboptimal portfolio.
Mentioned: VanEck Australian Equal Wt ETF (MVW)
Choosing an Aussie equity ETF isn’t just about picking the most popular option. It’s about understanding what drives its returns, how it behaves in different market conditions, and whether it’s likely to outperform after fees.
VanEck’s Australian Equal Weight ETF MVW has attracted plenty of attention for its unique approach which offers a very different take on the local share market compared with traditional index funds.
Despite its popularity, Morningstar assigns MVW a Neutral Medalist Rating. This means we don’t expect the fund to beat the Morningstar Category index average return after fees. In the case of MVW ETF, it belongs in the Australian Equity Large Blend category and its category index is represented by the ASX 200. This article will explore why our Manager Research team assigns this fund a Neutral rating relative to the broader Australian equity category.
Methodology and fees
MVW ETF is an equal-weighted strategy meaning it weights each of its constituents in the same proportion. This differs to market-cap-weighed funds which are more common. These simply represent each constituent in proportion to its size. Select academic arguments have indicated that equal weighting tends to outperform over the long-term. They tend to reduce concentration risk and provide more exposure to smaller companies, however, they do require more frequent rebalancing which introduces greater tax implications.
The fund tracks VanEck’s MVIS Australia Equal Weight Index. It starts by looking at every company listed on the ASX and also considers overseas companies if at least 50% of their business is tied to Australia. From there, the list is further refined using liquidity screens for new and existing holdings. From this final set, the largest 85% of companies by market cap are included and equally weighted.
That approach naturally shifts more of the portfolio toward mid‑sized stocks, rather than concentrating heavily in the big banks and miners that dominate the ASX. The portfolio is rebalanced every quarter which means the fund regularly trims outperformers and tops up underperformers.
MVW has a total cost ratio of 0.35% which is significantly higher than most market-cap-weighted passive strategies. Comparatively, A200 ETF which tracks the category ASX 200 index comes at a cost of 0.04%.
Portfolio composition
MVIS Australia Equal Weight Index typically holds between 70 and 100 stocks which is far fewer than the broader ASX 200. Even then, the companies it includes are still representative of the market and make up 85% of the total market capitalisation of the ASX 200.
Because Australia’s share market is heavily tilted toward cyclical sectors (resources, financials) this portfolio also ends up being heavily correlated to global economic conditions. The fund also tends to be overweight energy stocks, which adds another layer of economic sensitivity. The portfolio’s average market cap is less than half that of the ASX 200. It sits slightly above the size of companies in the ASX Midcap 50, giving the portfolio a noticeable mid‑cap tilt.
One element of an equal‑weight approach is that it naturally spreads exposure more evenly across sectors. As of March 2026, materials and financials were still the two largest sectors, at around 19% and 20%. This is compared with the ASX 200’s 24% and 30% respectively.
Performance
VanEck Australian Equal Weight delivered a strong start but has shown weaker risk-adjusted performance in the short to medium term. Over the 10 years to March 2026, the strategy outpaced the category average, however marginally missed beating the ASX 200 (10% vs 10.76%). More recently, the strategy has struggled after a surge from banks and miners which it has reduced exposure to.
The portfolio’s mid-cap skew makes it less defensive than the category index. As a result, the ETF has typically experienced deeper drawdowns during volatile periods, such as in 2018 and early 2020. Risk-adjusted returns (as measured by the Sharpe ratio) are also poorer than the category index (0.60 vs 0.68).
The turnover detail
A fund’s turnover shows how much holdings have changed over the course of the year. Funds are typically assigned a turnover ratio, which is measured by the total value of securities the fund bought or sold (whichever is smaller), divided by the fund’s average assets over the year.
MVW ETF must rebalance frequently to remain equal weighted. In practise, this results in an annual turnover of around 35%. More trading means higher transaction costs and the fund’s bid/ask spreads tend to be wider than those of standard market‑cap‑weighted ETFs.
Beyond what turnover reveals about a fund’s investment strategy, there are also significant tax considerations. If a fund is mandated or chooses to sell investments in quick succession, there is a higher likelihood of capital gains being realised in the short-term. This tax is then passed on to the investor. Those in high-turnover funds may end up with a larger, more volatile tax bill than expected (even if they didn’t sell the position).
What we think
VanEck Australian Equal Weight ETF MVW is a reasonable option and provides a degree of diversification through equal weighting. However, the added risk from its mid-cap tilt may limit its ability to deliver consistent, Morningstar Category-beating outcomes.
This approach provides exposure to certain academically supported risk premia. The mid-cap overweight captures the size premium, while the rebalancing generates a contrarian, mean-reversion effect akin to value investing. However, these exposures are indirect, and the ETF delivers only partial factor exposure, in part because of its liquidity constraints.
We think structure of the Australian market also limits the strategy’s effectiveness. Nearly 50% of market capitalisation is concentrated in the top 10 stocks, and over 50% in financials and materials. Large-cap names are generally high-quality, oligopolistic companies with strong profitability and pricing power, while smaller caps are more speculative and economically sensitive. As a result, the portfolio is skewed toward cyclical stocks, which limits diversification benefits and keeps overall market risk and portfolio volatility higher than might be expected from stock-level equal weighting.
There are some appealing aspects to this methodology but the fund’s dependence on factor cycles, mid-cap performance, as well as its higher transaction costs, reduces the likelihood of achieving consistent category-relative alpha on a forward-looking basis.
