Why has the Vanguard Australian Shares Index ETF (VAS) gone backwards in May?

The VAS ETF has followed the ASX 300 into the red this month.

Key points
  • The Vanguard Australian Shares Index ETF has fallen 1.67% during May, currently trading at $89.36
  • As the ETF tracks the ASX 300, most of its falls can likely be attributed to broader market movements
  • The Aussie bourse was seemingly impacted by a surprise rate hike and news mid-month the US was approaching its debt ceiling

The Vanguard Australian Shares Index ETF (ASX: VAS) has been slipping in May.

Since the VAS ETF aims to track the S&P/ASX 300 Index (ASX: XKO) – the only one of its kind to do so – its performance is largely up to the market's movements.

After VAS ended April trading at $90.88, the popular ASX exchange-traded fund (ETF) rose to its May peak of $91.66 on the first of the month before plunging to a low of $88.78 on 3 May.

Fortunately, it's since regained much of those losses.

With one May session left to go, the Vanguard Australian Shares Index ETF is trading at $89.36 at the time of writing – 1.67% lower than it was at the end of April.

So, what's been weighing on the ETF this month? Let's take a look.

A middle-aged woman sits in contemplation over a tablet device considering information about ASX shares and deep in thought.

Image source: Getty Images

What's been dragging on the VAS ETF and the ASX 300 lately?

The last month has been a rocky one for the ASX 300 and, in turn, the Vanguard Australian Shares Index ETF, with two major events seemingly behind their major moves.

Firstly, the market – and the nation – started the month out with a surprise interest rate hike.

The Reserve Bank of Australia upped rates for the eleventh time in 12 months. It added another 0.25% to the official cash rate, lifting it to 3.85%, on 2 May.

That day, the ASX 300 fell 0.9%, while the Vanguard Australian Shares Index ETF dumped 1%. The following day, the ETF fell to its intra-month low before bouncing higher once more.

However, it wasn't long before the ETF appeared to be shaken up by more major news. And, no, it wasn't the release of the federal budget.

News the US is approaching its debt ceiling hit headlines in the middle of the month when President Joe Biden cancelled his trip to Australia amid the growing domestic crisis.

If the US were to hit its debt ceiling, it would likely default on its debts. That would have widespread ramifications for the global economy.

At this point, it appears an agreement on lifting the debt ceiling will be reached before a collision.

Vanguard Australian Shares ETF unit price snapshot

While the ASX has been rough on the VAS ETF over the last 30 days, it's outperformed over the longer term.

The ETF has gained 4.15% since the start of 2023 while the ASX 300 has risen just 2.9%.

However, VAS has dumped 2.6% over the last 12 months while the ASX 300 has fallen just 1.6%.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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