The Vanguard Australian Shares Index ETF (ASX: VAS) is the most popular exchange-traded fund (ETF). It's worth considering whether it's a buy in the current environment.
The ETF hasn't fallen as much this year as other ETFs, like international share-based ones.
In 2022 to date, it has fallen by around 10%. Meanwhile, the Betashares Nasdaq 100 ETF (ASX: NDQ) has dropped 30%.
That's pleasing for investors in the Vanguard Australian Shares Index ETF. But it could also mean there's less of a rebound in 2023 compared to United States shares or international shares.
However, 2023 could still be fruitful for a number of reasons.
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Rising interest rates
One of the most talked-about things in the economy at the moment is rising interest rates and, moreover, how high they're going. This is affecting businesses and households in a number of different ways.
But, with financial shares making up a sizeable portion of the ETF, what happens with interest rates can have a major impact on ASX bank shares.
There are plenty of banking names that could benefit from higher interest rates including Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB), Bank of Queensland Ltd (ASX: BOQ) and Bendigo and Adelaide Bank Ltd (ASX: BEN).
With banks passing on loan rate hikes quicker than savings interest rate increases, this period could mean substantially better lending profitability for the banks. This could boost bank share prices and shareholder returns, including dividends.
However, at some point, it could lead to higher arrears, so I'm keeping an eye on that.
Improving COVID-19 situation in China
A lot of Australian commodities are exported to the Asian superpower, with iron ore being a key resource.
Lockdowns were used to limit the spread of COVID-19. It's also meant that economic activity has been limited in the country. The iron ore price had drifted lower, but it's come bouncing back as China has steadily lifted its COVID restrictions.
There are a few high-profile ASX iron ore shares within the Vanguard Australian Shares Index ETF that could drive the performance of the ASX if they can benefit from higher resource prices, including the bigger dividends.
It's quite possible that the share prices of BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) could rise even further. But, resource prices are unpredictable, so who knows what will happen next?
However, a CBA analyst is speculating that March could be the month of an official COVID change in China.
Good dividend yield
A number of the major positions in the Vanguard Australian Shares Index ETF portfolio pay good dividends, like the ASX iron ore shares, the ASX bank shares, Telstra Group Ltd (ASX: TLS), Wesfarmers Ltd (ASX: WES), Coles Group Ltd (ASX: COL), Woodside Energy Group Ltd (ASX: WDS) and Macquarie Group Ltd (ASX: MQG).
According to Vanguard, the dividend yield of the ETF, excluding franking credits, is 4.3% at the end of November. Regardless of what happens next, the dividends alone could be a good starting point for the annual return.
Foolish takeaway on the Vanguard Australian Shares Index ETF
Overall, I think the Vanguard Australian Shares Index ETF would be a solid long-term investment for 2023 and beyond. It's cheap with an annual management fee of just 0.10%, though the holdings are not very strongly diversified, with large allocations to banks and resources. A higher technology allocation could be helpful in the long term, though this won't change unless the S&P/ASX 300 Index (ASX: XJO) changes.
