Why did the Vanguard Australian Shares Index ETF perform strongly in October?

The Vanguard Australian Shares Index ETF (ASX: VAS) produced a strong performance for investors in October.

Not only did the exchange-traded fund (ETF) see the unit price rise by 4.4% over the month, but it also paid out a distribution that was equivalent to a return of approximately 1.8%.

That means that, in total, it made a return of around 6.2% during October.

Considering the ETF’s total return per annum over the decade to September 2022 was 8.3%, seeing a total return of 6.2% in one month was pleasing.

What drove the Vanguard Australian Shares Index ETF return?

There are two different elements to the returns I just mentioned.

ETFs are meant to pass through the dividends they receive from the investments they hold.

Every quarter, the Vanguard Australian Shares Index ETF pays out the income it has received from the investments that it’s invested in. It is invested in companies that are in the S&P/ASX 300 Index (ASX: XKO) – it tracks this index.

The distribution for the quarter ending 30 September 2022 had an ex-entitlement date of 3 October 2022 and a payable date of 18 October 2022. The ETF paid a distribution of $1.45 per unit.

But, the larger part of the return came from capital growth. The ETF’s capital growth comes from the capital movements from the underlying holdings.

The bigger the business holding in the ETF’s portfolio, the more of an effect it has on the overall return.

For example, names like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), CSL Limited (ASX: CSL) and National Australia Bank Ltd (ASX: NAB) have the biggest weightings and have the biggest impact. The other big ASX bank shares are also sizeable positions.

So, let’s look at those share price movements.

In October, the BHP share price fell 3%.

The CBA share price went up 15.4%.

CSL shares declined 1.6%.

The NAB share price went up 12.5%.

The Westpac Banking Corp (ASX: WBC) share price rose 16.8%.

The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price grew by 12%.

Why did banks do so well?

During the month, ANZ reported its FY22 result, which demonstrated how much more lending profit it could make now that interest rates are higher. This logic of higher lending earnings could also be applied to other banks.

I also wrote about one of the main things that could have been a boost for banks. I suggested the smaller-than-expected interest rate rise from the Reserve Bank of Australia (RBA) in October could mean bank books may not be hurt as much as previously expected, putting less pressure on borrowers.

The post Why did the Vanguard Australian Shares Index ETF perform strongly in October? appeared first on The Motley Fool Australia.

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More reading

• 2 excellent ETFs for ASX investors in November
• Here’s how the Vanguard Australian Shares ETF (VAS) stacks up against the BetaShares Australia 200 ETF (A200)
• 5 things I look at when buying an ASX ETF
• Is the Vanguard Australian Shares (VAS) ETF the most popular ETF to buy?
• These could be the ETFs to buy for big dividends

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL Ltd. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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