June was one of the toughest months in recent years for the Vanguard Australian Shares Index ETF (ASX: VAS).
In June 2022, the VAS ETF dropped by 8.7%. We haven't seen a drop that hard since the COVID-19 crash in 2020.
Remember, an exchange-traded fund's (ETF) return is decided by the returns of the underlying businesses.
The Vanguard Australian Shares Index ETF follows the S&P/ASX 300 Index (ASX: XKO), comprising 300 of the biggest businesses on the ASX.
This means, collectively, the ASX 300 fell by 8.7%. At the end of May 2022, these were the positions with a weighting over 3%: BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), CSL Limited (ASX: CSL), 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).
As readers can see, a majority of the biggest holdings are banks. The big four banks accounted for almost 20% of the portfolio at the end of May 2022. Including Macquarie, it was around 23% of the portfolio. BHP by itself was 10.2% of the portfolio. These few ASX blue-chip shares account for more than a third of the portfolio.
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Declines for ASX blue-chip shares
June was not a kind month for many of the VAS ETF holdings I just mentioned.
The BHP share price saw a 7.5% drop over June.
The CBA share price fell 13.4%.
The NAB share price dropped 12.4%.
The Westpac share price declined 18.3%.
The ANZ share price fell 12%.
I'm not going to list every ASX 300 share's performance in June, but the above movements were some of the biggest contributors to the Vanguard Australian Shares Index ETF's fall.
Why did they fall?
With BHP, movements in the iron ore price can have significant impacts on the BHP share price because that's what generates a lot of the profit for the company. Over the month, the iron ore price fell by around US$20 per tonne.
With the banks, the move by the Reserve Bank of Australia (RBA) to increase the interest rate by 50 basis points, or 0.5%, in June may have stirred things up.
While a higher interest rate may assist the banks' net interest margins (NIM), analysts think it could also cause problems for banks as well. For example, Morgan Stanley noted that higher interest rates could cause higher arrears and bigger loan losses.
Retail sentiment compounded the pressure. Trading data for June showed capital leaving Australian equities for alternative assets, from gold ETFs and bitcoin casino platforms to DeFi staking pools. That rotation only deepened the selling on ASX-listed names already struggling with the macro outlook.
Time will tell how low the iron ore price goes and how high the RBA interest rate is going to go. Another rate hike is expected later today by the RBA.
