3 reasons why the Vanguard Australian Shares Index ETF (VAS) could perform strongly

The Vanguard Australian Shares Index ETF (ASX: VAS) has a number of positives going for it at the moment, which could make it a good investment.

Plenty of investors may already be utilising this exchange-traded fund (ETF) with a dollar-cost averaging (DCA) strategy, so short- to medium-term issues may not matter when choosing to invest in it.

But for investors with a wide range of investment choices, there are supportive factors that could help the VAS ETF deliver good returns relative to many other ASX ETFs or individual companies. Let’s run through my thoughts on the appeal.

Bank exposure benefits from rising interest rates

ASX bank shares make up a significant part of the S&P/ASX 300 Index (ASX: XKO) – that’s the index that the VAS ETF tracks. At the end of February 2026, approximately a third of the fund was invested in ASX bank shares.

We’re talking about names like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB), Macquarie Group Ltd (ASX: MQG), Bank of Queensland Ltd (ASX: BOQ), and Bendigo and Adelaide Bank Ltd (ASX: BEN).

So, whatever happens with banks plays an important role in the index’s overall return.

Elevated inflation and higher interest rates are a headwind for plenty of companies’ earnings and their share prices. However, for banks, it could be a net positive.

While it may lead to higher arrears and bad debts with a few borrowers, the potential uplift in the net interest margin (NIM) is compelling. A higher RBA cash rate should mean banks can earn a higher loan interest rate on lending out transaction account fund balances (which pay little/no interest to customers).

Following the earnings performance of banks during the 2022 to 2024 period, I think this could be a useful time to have ASX bank share exposure.

Commodity price growth

Materials make up just over a quarter of the VAS ETF, with names like BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO), Fortescue Ltd (ASX: FMG), South32 Ltd (ASX: S32), and ASX gold shares all potential beneficiaries. ASX shares related to energy, like ASX lithium shares, ASX coal shares, and Woodside Energy Group Ltd (ASX: WDS), could also see rising earnings.

I don’t know how long inflation will persist or how high it will go, but I think it is a longer-term tailwind for resource prices.

As an index with significant exposure to ASX mining shares, I think the VAS ETF could be a beneficiary in the foreseeable future.

Good dividend yield

The VAS ETF could be an appealing option for passive income, as it offers a stronger dividend yield amid rising household costs.

At the end of February 2026, the VAS ETF had a dividend yield of 2.9%, with franking credits a bonus on top of that.

If bank and miner dividends can grow amid rising profits, then the Vanguard Australian Shares Index ETF could deliver rising distributions for investors.

The post 3 reasons why the Vanguard Australian Shares Index ETF (VAS) could perform strongly appeared first on The Motley Fool Australia.

More reading

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• 3 simple ASX ETFs to start investing with $5,000
• How long does it take to become a millionaire with ASX shares?
• Own ASX VAS or other Vanguard ETFs? Dividends just announced
• Is it too late to start investing in ASX shares in your 40s?

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 Macquarie Group. The Motley Fool Australia has positions in and has recommended Bendigo And Adelaide Bank and Macquarie Group. The Motley Fool Australia has recommended BHP Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.