The Vanguard Australian Shares Index ETF (ASX: VAS) is the most popular exchange-traded fund (ETF) on the ASX. But that didn't stop this index fund from having a pretty dire year over the financial year just gone.
FY2022 saw the VAS ETF lose a painful 20% or so. That essentially mirrored the losses of the broader S&P/ASX 300 Index (ASX: XKO) that this ETF tracks.
But FY2022 is now well in the rearview mirror. So what might the current 2023 financial year hold in store for this popular ETF?
Well, to answer that, let's look at how this ETF is put together. The Vanguard Australian Shares ETF is an index fund and tracks the ASX 300. This makes it a fairly unique ETF on the ASX. That's because most other ASX index funds prefer to mirror the S&P/ASX 200 Index (ASX: XJO).
So VAS holds approximately 300 of the ASX's largest shares. These are weighted according to market capitalisation (or size). There are 300 individual companies represented in this ETF. But even so, the market cap weighting means that there are only a few ASX shares that really make VAS move and shake.
To illustrate, BHP Group Ltd (ASX: BHP) is currently the largest share on the ASX 300 by market cap. Thus, even though it is one of 300 individual holdings in VAS, it still takes up a whopping 10.4% of the ETF's entire portfolio weighting.
Throw in the big four ASX bank shares and we have another 18.65% of VAS's portfolio accounted for. Indeed, VAS's top ten holdings account for more than 46% of this ETF's entire weighting.
So ten ASX shares account for just over 46% of the Vanguard Australian Shares ETF's portfolio. That means the remaining 290 shares account for the other 54%.
VAS in FY2023? Here are the shares to watch…
Thus, if we want to predict what is going to happen to VAS over FY2023, the performance of those ten shares is going to be vital. Therefore, we can conclude that it's highly likely that if the big four banks, BHP, and Woodside Energy Group Ltd (ASX: WDS) have a good year in FY2023, then the VAS ETF will as well.
And say the other VAS top-tenners like CSL Limited (ASX: CSL), Wesfarmers Ltd (ASX: WES), and Telstra Corporation Ltd (ASX: TLS) also have a decent year. Then it's almost a done deal that VAS will too.
So if one wants to take an educated guess as to what will happen to the Vanguard Australian Shares ETF in FY2023, that is what to watch out for.
