Top 5 ASX ETFs to invest in May 2026
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Stocks in stable, low-risk economies with deep liquidity tend to attract both local and international investors and traders. For traders seeking diversified exposure, one of the simplest approaches is index trading, which provides broad access to an entire equity market. A common example is the Australian Securities Exchange (ASX).
The Australian index has had a high-octane start to 2026, outperforming its global peers and declining 1.8%, compared to 4.5% drop in the S&P 500 and the Nasdaq 100 falling over 6%. Analysts expect the ASX to continue to outperform in Q2, driven by the performance of mining companies. Exports of raw materials and precious metals could provide a hedge against ongoing geopolitical uncertainties.
Whether you’re a seasoned pro or just starting your journey, the ASX offers a gateway to both local and international growth.
Why invest in the ASX?
The ASX is Australia’s primary stock exchange, hosting over 2,000 companies. It is a diversified ecosystem that gives you exposure to the technology, healthcare, sustainable energy and mining sectors among others. You can gain exposure to all the sectors represented on the exchange through its benchmark index, the S&P/ASX 200, which represents about 80% of the total capitalisation of the Australian stock market.
Despite 2025 having been a year of global worries over inflation, the Aussie market remained resilient, supported by a resurgence in commodity demand and surprisingly strong domestic consumer spending. In fact, the ASX reached an all-time high of 9,115 in mid-October 2025. However, the market experienced a notable 7.7% correction by late November, due to high inflation expectations and fluctuations in the mining and healthcare sectors. Despite this, analysts had forecasted in December 2025 that the index would rebound in 2026, potentially ending the year at 8,900.
However, 2026 has been a different story. In February 2026, the ASX 200 hit a record high of 9,200 points, fuelled by an encouraging corporate earnings season. But as markets often do, they threw a curveball. The onset of the US-Iran conflict in early March triggered oil supply disruptions, leading to a sharp 8% correction. By April, valuations had reset, creating what many analysts believed was an attractive entry point for investors who wanted to buy the dip.
Analysts at Macquarie Asset Management agree that the backdrop for Australian equities remains ‘broadly supportive’. They emphasise that companies that are able to protect their margins, even if interest rates stay higher for longer, will perform better.
The materials and energy-transition sectors are expected to be key growth drivers for the Australian stock market for the remainder of 2026. ‘Defensive’ sectors, which are usually not impacted by geopolitical tensions or economic downturns, like utilities, consumer staples and healthcare, are also likely to find some support. Also, contrary to expectations at the start of the year, the Reserve Bank of Australia (RBA) raised interest rates to 4.35% in the first week of May 2026 due to persisting inflation. This led to a 0.9% decline in the ASX, highlighting the importance of keeping a close eye on the latest economic and geopolitical news.
How to invest in the Australian stock market
Investing in individual stocks is always an option. Do your research and pick your favourites. But what if you don’t have the time or experience to analyse individual stocks? And what if you want diversified exposure to the ASX on a budget? This is where the ASX ETF (Exchange-Traded Fund) comes in.
An ETF is a basket of securities that tries to mirror the performance of the underlying sector, market or asset class. So, an ETF that mirrors the ASX contains stocks from the same sectors and in the same proportion as the ASX, mimicking the broader index. ETFs are bought and sold on the exchange just like regular shares. If you are interested in index trading, ETFs can be a great choice to track the performance of an entire market with a single click. They offer diversification, lower costs and transparency, making them a popular choice among investors worldwide.
You can either invest directly in ETFs or trade them via Contracts for Difference (CFDs). ETF CFDs are derivative products that allow you to speculate on the price movements of ETFs without owning units of the underlying fund. CFDs have gained popularity because they lower entry barriers through leverage. Plus, they allow you to trade both rising and falling markets, increasing your trading potential. However, remember that by amplifying market exposure, leverage tends to magnify both potential gains and potential losses. This makes using leverage wisely and putting risk management measures in place crucial. Also, while ETFs are preferred for long-term investment horizons, ETF CFDs are popular for short-term strategies.
Top 5 ASX ETFs for May 2026
After the valuation reset in March and April, these five ETFs stand out as potential contenders for your portfolio as we head into mid-2026.
1. Vanguard Australian Shares ETF (ASX: VAS)
This is the heavyweight champion of Australian investing. VAS doesn’t just track the top 200 companies; it tracks the top 300. This gives you exposure to giants like Commonwealth Bank of Australia (CBA) and BHP Group Limited, but also to the smaller, faster-growing companies that might become market leaders in the next few years.
VAS has been popular among investors who want exposure to the ASX. Over the last decade, it has provided consistent returns, driven by both price growth and dividends. Since this ETF is so broad, it is considered a good all-rounder. With the Australian economy expected to pick up steam in the latter half of 2026, VAS is likely to capture the recovery across every sector, from retail to tech.
2. BetaShares Australia 200 ETF (ASX: A200)
This ETF tracks 200 of the largest companies on the ASX.
This ASX ETF provides nearly identical returns to the ASX 200 index. It has been a standout performer for investors who want a ‘pure’ market return. With a management fee of just 0.04%, it is one of the cheapest ways to invest in Australia. In a world where every dollar counts, A200 allows more of your money to stay in the market rather than going to fund managers.
3. VanEck Australian Equal Weight ETF (ASX: MVW)
The Australian market has a bit of a top-heavy problem. Usually, the top 10 companies make up nearly half of the entire index. MVW fixes this by giving every company equal weightage.
This ETF often outperforms during times when the big banks are struggling, but smaller companies are thriving. During the March 2026 correction, MVW’s balanced approach helped it avoid the heavy losses seen in the mega-cap banking sector.
VanEck’s historical performance suggests that equal weighting drives outperformance during a recovery. If you believe that mid-sized Australian companies have more room to grow than the established giants, MVW could be a good choice.
4. Vanguard Australian Shares High Yield ETF (ASX: VHY)
If you love dividends, VHY is the way to go because this ASX ETF is built specifically to find dividend paying stocks. It focuses on the 60-70 companies with the highest forecasted dividend yields.
VHY has historically offered a yield 1%-2% higher than the broader market, which has made it a favourite for retirees or anyone looking for a passive income stream.
In a volatile year like 2026, many investors look for a source of income, which dividends can offer. Analysts suggest that as capital gains become harder to find, investors are likely to flock to high-yielders like VHY. With the mining and banking sectors likely to continue to outperform, VHY could be a top performer for income-seekers in May and beyond. But the stock markets tend to be unpredictable. This is why experienced traders recommend diversifying your portfolio across different sectors and asset classes.
5. SPDR S&P/ASX 200 Fund (ASX: STW)
This was the very first ETF ever listed in Australia.
STW has survived every crash and boom since the early 2000s. It is highly liquid, meaning you can buy and sell large amounts of it instantly without affecting the price.
If you want the most traditional investment experience, STW is it. It’s a no-frills, high-liquidity fund that does exactly what it says. This is also the preferred ASX ETF for traders looking to hedge their domestic positions during uncertain geopolitical environments.
Trading CFDs on ASX ETFs with FP Markets
As you look at these options, remember to choose an ETF that fits your specific goals and risk appetite. The market has reset after Q1 2026, valuations are looking more reasonable, and the underlying strength of the Australian resource and financial sectors remains intact.
Also, the volatility in early 2026 has shown us once again that markets don’t go up or down in a straight line. The 8% dip in the ASX in March 2026 was a correction that might have laid the path for more sustainable growth.
When trading a market as dynamic and nuanced as the ASX, having a reliable broker by your side makes all the difference. FP Markets offers competitive spreads, fast execution, and robust risk management tools tailored for the Australian and global markets. Experience premium trading conditions with a globally regulated broker. Ready to take control of your index CFD trading journey? Open an account with FP Markets today.
