The S&P/ASX 300 Index (ASX: XKO) and ASX shares are having a stellar start to the trading week so far this Monday. At the time of writing, the ASX 300 is up a healthy 0.78% at just under 7,190 points. So as an index fund covering the ASX 300, by all accounts, the Vanguard Australian Shares Index ETF (ASX: VAS) should be doing something similar.
Yet this ASX exchange-traded fund (ETF) is barely up today. Vanguard Australian Share ETF units closed at $89.78 each last Friday. But today, this ETF is only up by a seemingly paltry 0.29% at $90.04. Index funds like the Vanguard Australian Shares ETF are supposed to mirror the index they track. So this is a rather strange diversion.
Thankfully, this ETF isn't broken, and neither is the share market. And in fact, investors should be grateful that Vanguard Australian Shares ETF units are in the green at all. This situation is occurring because it is ex-dividend day for the Vanguard Australian Shares ETF. Or more accurately, ex-distribution day.
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Vanguard Australian Shares ETF doles out its latest dividend
Just like ASX shares, ETFs can pay out dividends too. These are known as distributions, and occur because an ETF that holds dividend-paying shares in its portfolio has to pass those dividends through to their investors.
In the Vanguard Australian Shares ETF's case, it owns the 300 largest shares by market capitalisation on the share market. That's everything from Westpac Banking Corp (ASX: WBC) and Rio Tinto Limited (ASX: RIO) to Xero Limited (ASX: XRO) and Lovisa Holdings Ltd (ASX: LOV).
So there are a lot of dividends to pass on here. As such, this ETF usually pays out quarterly dividend distributions. And the latest one is coming to investors soon.
Late last month, Vanguard announced that the Australian Shares ETF's latest distribution would be paid on 20 April, with an ex-distribution date of 3 April.
Later, the provider confirmed that this distribution would be worth 57.6988 cents per unit. This is the lowest quarterly distribution that this ETF has paid out since July 2021. For context, last year's corresponding quarterly payment was worth 199.59 cents per unit. The previous quarterly payment that was doled out in January this year was worth 74.97 cents per unit.
So as of today, new investors in the Vanguard Australian Shares ETF are not eligible for this upcoming dividend distribution. As such, this explains why the ETF isn't matching the market's gains and appears to be underperforming.
