The Vanguard Australian Shares Index ETF (ASX: VAS) is a popular investment on the ASX. So popular in fact, that it is the largest exchange-traded fund (ETF) on the ASX by funds under management.
ASX investors typically choose the VAS ETF for its broad exposure to the share market, with its portfolio of the 300 largest publically-traded Australian shares.
But for eagle-eyed investors, something might seem amiss when looking at the VAS share price.
This ETF is still trading under its pre-COVID high. Back in February 2020, VAS hit $90.55 a unit. Today, this ETF is currently trading at $90.31. So it doesn't look like this ETF has gone anywhere in more than three years:
That might be a little disappointing, seeing as investors typically choose to invest in an index fund like the Vanguard Australian Shares ETF in order to snag a real return on their money that exceeds what they might get at a bank.
So why is this ETF still where it was more than three years ago?
Why is the VAS share price where it was three years ago?
Well, the answer is a little more complex than it might seem. In the simplest terms, VAS's ASX units are where they were in February 2020 because the index that the ETF tracks, the S&P/ASX 300 Index (ASX: XKO), is around that same level as well
Of course, both the VAS ETF and the ASX 300 have had a very volatile few years between 2020 and 2023, mostly thanks to the 2020 COVID crash.
But comparing where the Vanguard Australian Shares ETF was in February 2020 and where it is today is not capturing the entire picture. It has not been a zero-sum game for investors of this ETF over the past three and a bit years at all. In fact, in the three years to 28 February 2023, investors enjoyed an average annual gain of 8% from this ETF.
How does that work, if the VAS unit price barely changed over those three years? The answer is dividends.
Because the Vanguard Australian Shares ETF holds 300 ASX shares within its portfolio, it receives any dividends that these shares payout. The ETF then passes through these dividends to its investors in the form of quarterly distributions.
In the 2020 calendar year, investors in the fund received a total of $1.88 in dividend distributions per unit. In 2021, it was $3.43 per unit, which rose to $6.36 in 2022.
So that's where the approximate 8% per annum return that this ETF's investors have enjoyed over the past three years or so has come from. When it comes to ASX ETFs like VAS, this just goes to show how important dividend returns are for investors.
