The Vanguard Australian Shares Index ETF (ASX: VAS) has managed to deliver good outperformance for investors in 2022 to date.
While it's only down by 6.6% for the year, other exchange-traded funds (ETFs) have gone down much further. For example, the Betashares Nasdaq 100 ETF (ASX: NDQ) is down by 25% and the BetaShares S&P/ASX Australian Technology ETF (ASX: ATEC) is down by 29%.
The performance of an ETF is decided by the underlying performance of the holdings. So, let's have a quick recap of its biggest positions before thinking about how December and beyond may go.
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Biggest holdings in the Vanguard Australian Shares Index ETF
At the end of October 2022, the biggest holdings were:
- BHP Group Ltd (ASX: BHP) – Australia's biggest resources business, with exposure to commodities like iron ore, copper and nickel
- Commonwealth Bank of Australia (ASX: CBA) – Australia's largest ASX bank share
- CSL Limited (ASX: CSL) – The ASX healthcare giant that's focused on vaccines, blood plasma therapies and other advanced treatments
- National Australia Bank Ltd (ASX: NAB) – This is Australia's second-largest bank
There are many other holdings, but commentary about BHP, CBA and NAB can also be applicable to Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Limited (ASX: RIO).
What could happen in December?
There seem to be two main things affecting the large end of the ASX share market at the moment. Developments could have a further impact on the Vanguard Australian Shares Index ETF.
For the banks, it's all about interest rates. They have benefited from a swift rise in the RBA interest rate. It means they're able to charge more interest on their loans (such as mortgages), but the interest rate on savings accounts hasn't gone up as quickly.
However, if interest rates go too high then it could hit households hard and cause bank bad debts to rise. What the RBA does next, and the commentary it provides could have a big impact on ASX bank share returns and the overall return of the ETF in December.
Developments in China seem to be having a large impact on the iron ore price, which is usually important for the share prices of BHP, Fortescue and Rio Tinto.
Chinese cities are slowly but steadily lifting COVID restrictions. For example, people don't need to present a negative COVID test to get on public transport. Less COVID controls could mean more demand for iron, and stronger profit potential for BHP and so on. Investors usually like the prospect of more profit.
Foolish takeaway
The Vanguard Australian Shares Index ETF could see a strong finish to the year if China keeps lessening its COVID restrictions and the RBA signals that interest rates aren't going to go as high as expected. But, neither of those things is guaranteed to happen in December, so time will tell how the ETF performs.
