The Vanguard Australian Shares Index ETF (ASX: VAS) has seen plenty of volatility this year, along with the global share market.
For readers who don't know, this exchange-traded fund (ETF) is an investment that tracks the S&P/ASX 300 Index (ASX: XKO). This means it aims to track the combined return of 300 of the biggest businesses in Australia.
It gives investors exposure to names like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), CSL Limited (ASX: CSL) and National Australia Bank Ltd (ASX: NAB).
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The ASX has not been immune to declines
While some share markets have seen more pain this year, the ASX has experienced its fair share of a drop. The United States share market has fallen even further because of the high weighting toward technology names. Tech valuations have typically been hit harder because of inflation and rising interest rates.
But, getting back to the Vanguard Australian Shares Index ETF, since the start of 2022 it has actually dropped by 15% in value.
That means that $5,000 would have fallen by $750 to $4,250. Ouch.
But, remember that short-term movements are not necessarily important. Hopefully, many investors have chosen to put their money to work in the share market for longer than 10 months. What happens in 2022 isn't really important if an investor's timeframe is thinking ahead to 2040 or even 2030.
It is common for the ASX share market to go through periods of volatility, we just don't know when they're going to happen. But, it may be possible to find attractive investment opportunities at times like this.
Don't forget about the investment income
Australian companies like to pay dividends to investors, partly so they can unlock the tax-effective franking credits.
As an ETF, the Vanguard Australian Shares Index ETF should pass through to investors the dividends and distributions that it receives. So, while the unit price of Vanguard Australian Shares Index ETF has dropped 15%, the distributions mean the total return has been less painful.
There have been three distributions announced in 2022. Including the quarterly payment due on 18 October 2022, this amounts to approximately $5.61 per unit. This equates to another 5.85% of return (not including franking credits).
That would give a cash return of just over $290, meaning investors would have $4,542.50 at the time of writing.
What's next for the Vanguard Australian Shares Index ETF?
ETFs track the returns of the underlying investments. So, this ETF's upcoming performance will be entirely decided by the returns generated by the ASX's blue chips.
There will be a couple of big factors that affect the shorter-term returns.
For the big miners, it could depend on what direction the iron ore price goes.
With the ASX bank shares, rising interest rates could be the most important thing. On the one hand, higher rates may increase lending margins, but in the longer term it may lead to higher loan arrears. Will the positive or negative side impact the banks (and investor sentiment) more?
Due to the sector make-up of the ASX, I don't think the Vanguard Australian Shares Index ETF is going to fall as much as the Betashares Nasdaq 100 ETF (ASX: NDQ), which is largely tech. The Betashares Nasdaq 100 ETF is down by 27% this year.
