Why did the Vanguard Australian Shares Index ETF (VAS) get hammered in February?

A man smashes open a piggy bank with a hammer representing an ASIC fine received by Westpac

A man smashes open a piggy bank with a hammer representing an ASIC fine received by Westpac

The Vanguard Australian Shares Index ETF (ASX: VAS) didn’t have a great February 2023 – it went backwards by 2.75%. That compares to a 2.9% decline for the S&P/ASX 200 Index (ASX: XJO).

It was a similar fall for both the exchange-traded fund (ETF) and the ASX 200 because they are heavily influenced by the same businesses.

The return of the Vanguard Australian Shares Index ETF, and all ETFs, is dictated by the returns of the underlying holdings.

Some of the biggest holdings did not have a positive month in terms of their share price movements.

ASX blue chips take a dive

The BHP Group Ltd (ASX: BHP) share price declined by 8.5% last month, and at the start of the month, it made up 11% of the ETF’s portfolio.

The Commonwealth Bank of Australia (ASX: CBA) share price fell 8.5% as well, at the start of February and it was 8.2% of the portfolio.

CSL Limited (ASX: CSL) shares only dropped by 0.6% over the month, it had a 6.3% weighting of the ETF’s portfolio.

The National Australia Bank Ltd (ASX: NAB) share price went down 5.6% in February, it had a 4.4% weighting in the Vanguard Australian Shares Index ETF.

The share prices of Westpac Banking Corp (ASX: WBC) and ANZ Group Holdings Ltd (ASX: ANZ) also suffered a decline.

The Rio Tinto Limited (ASX: RIO) share price dropped by 7.8% and the Fortescue Metals Group Limited (ASX: FMG) share price went backwards by 3.8%.

In summary, the ASX’s biggest miners and banks didn’t have a good month.

What happened?

It was reporting season last month, so we got an insight into the performance of many businesses.

Banks like CBA and NAB reported an impressive jump in profitability because of their stronger lending profits amid higher interest rates. The profit rise was largely because rates went up quicker for borrowers than savers.

However, banks like CBA have talked about the strong competition for borrowers that are refinancing, with lenders offering large cash backs to borrowers that switch. The extra lending profit is being competed away and banks may not see as much profit growth as previously expected.

It’d be understandable why this changing dynamic has lowered investor excitement about the banking sector.

On the (iron ore) mining side of things for the Vanguard Australian Shares Index ETF, each of the big miners reported a decline in profits and dividends declared as the lower iron ore price hurt the comparisons to 2021.

At the end of the month, there was also news that China may be limiting some steel production amid concerns about the environment and pollution. This had an impact on the iron ore price.

What next?

There won’t be many company updates in March, but the market may be heavily focused on the Reserve Bank of Australia’s (RBA) next move with interest rates, as well as the commentary about further moves.

The post Why did the Vanguard Australian Shares Index ETF (VAS) get hammered in February? appeared first on The Motley Fool Australia.

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More reading

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia has recommended Westpac Banking. 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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