Is it a good time to buy the Vanguard Australian Shares Index ETF?

This exchange-traded fund is an interesting investment proposition in the current environment.

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Key points

  • The Vanguard Australian Shares Index ETF gives exposure to the ASX 300
  • There is a lot of volatility on the ASX and abroad right now
  • I think there are other ETFs that could make smarter plays after their declines

There is a lot of volatility in the ASX share market right now. Could it be a good time to buy the Vanguard Australian Shares Index ETF (ASX: VAS)?

This exchange-traded fund (ETF) is about the S&P/ASX 300 Index (ASX: XKO). That comprises 300 of the biggest businesses on the ASX. It’s provided by the fund management business Vanguard, which prides itself on giving investors very cheap investment funds.

The lower the cost of an ETF, the more of the return that is left in the pockets of investors. That means that the net returns over time can be stronger.

Is now a good time to buy units of the VAS ETF?

Over the last month, the Vanguard Australian Shares Index ETF has dropped by 6.4%. It has also fallen by 7.3% since the start of the year. That’s better than some of the other popular ETFs on the ASX. For example, the Vanguard US Total Market Shares Index ETF (ASX: VTS) has fallen by 17% since the start of 2022 and Betashares Nasdaq 100 ETF (ASX: NDQ) has dropped by around 25%.

Of course, looking at returns over the past five years shows a different picture, with the Vanguard Australian Shares Index ETF’s gain of 22% being dwarfed by that of the Vanguard US Total Market Shares Index ETF (up 68%) and the Betashares Nasdaq 100 ETF (up 101%).

Ideally, we want to buy assets at a cheaper price rather than a higher price. So, a decline in the Vanguard Australian Shares Index ETF would be useful for investors that want to buy units of the ETF.

It may not be that surprising that the ASX is outperforming in an inflationary and rising interest rate environment.

Some of the businesses that are, in theory, meant to perform positively with inflation are commodity companies. Some of the biggest businesses on the ASX are resource shares, so they are benefiting from the higher commodity prices. Examples include BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), Fortescue Metals Group Limited (ASX: FMG), Woodside Petroleum Limited (ASX: WPL), Santos Ltd (ASX: STO), Newcrest Mining Ltd (ASX: NCM), and South32 Ltd (ASX: S32).

Rising interest rates could be a benefit to banking shares, which also represent a large part of the ASX 300. Some of the biggest banks on the ASX are Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Macquarie Group Ltd (ASX: MQG).

So, a lot of the ASX is seeing positive factors for earnings and the share prices.

My verdict

The VAS ETF is a solid investment to own for the long-term in my opinion. Its cheap fees and useful diversification is a good way to get exposure to ASX shares and it pays a decent dividend yield.

However, with how the ASX 300 is being supported by many of the above names I’ve mentioned, I think it could prove to be a better idea to look at some international diversified ETFs, such as the NDQ ETF, that have fallen harder and offer exposure to plenty of the world’s best businesses.

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended BETANASDAQ ETF UNITS. The Motley Fool Australia has positions in and has recommended BETANASDAQ ETF UNITS. The Motley Fool Australia has recommended Macquarie Group Limited and 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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