Vanguard Australian Shares Index ETF (ASX: VAS) had a very good year, delivering capital growth of around 10%, beating the return of approximately 9% for the S&P/ASX 200 Index (ASX: XJO). Dividends were an added bonus for shareholders.
The VAS ETF tracks the S&P/ASX 300 Index (ASX: XKO), which is similar to the ASX 200 but it comes with an extra 100 holdings, which are smaller. Those smaller businesses can experience greater volatility, but they can also deliver more growth over the long term.
How did the VAS ETF perform?
An ETF's return is dictated by the performance of the underlying holdings, while its income distribution is simply passing through the dividends it has received to the investors.
If we look at the Vanguard Australian Shares Index ETF holdings, the biggest positions are names like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), CSL Ltd (ASX: CSL), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and ANZ Group Holdings Ltd (ASX: ANZ).
BHP and CBA both rose by close to 10%, so they were helpful contributors to the performance of the ASX 200 and ASX 300. But, it was names like Wesfarmers Ltd (ASX: WES), Fortescue Ltd (ASX: FMG) and Goodman Group (ASX: GMG) which all delivered returns of at least approximately 25%. Fortescue rose by more than 40%, which was a whopping rise for such a big business.
Iron ore miners have benefited from a huge rise in the iron ore price to US$140 per tonne, which means they can generate more profit each month.
ASX bank shares face a more tricky situation amid higher interest rates because they have reduced demand for credit and increased risk of borrowers going into arrears and possibly defaulting on their debts.
After a heavy sell-off in 2022 for a number of ASX small-cap shares, plenty of them bounced back in 2023, and collectively the ASX 300 benefited from that.
Were there any areas of weakness?
Some ASX energy shares did suffer amid weaker commodity prices, such as IGO Ltd (ASX: IGO) and Whitehaven Coal Ltd (ASX: WHC).
ASX healthcare shares have also suffered a decline in their share prices. Some of that may be down to the higher interest rate environment, but it also seems to be that investors are worried about what effect new weight loss drugs may have on shares like ResMed Inc (ASX: RMD). Ramsay Health Care Ltd (ASX: RHC) is also down by around 20% over the past year. Time will tell how the VAS ETF performs in 2024, but it's not guaranteed to have another strong year.
The banking sector and ASX iron ore shares could have a large influence on what happens in the next 12 months.
