The Vanguard Australian Shares Index ETF (ASX: VAS) is one of the most popular exchange-traded funds (ETFs) on the ASX. Over the long term, the fund has many positive aspects, such as low fees and diversification.
However, there are also negatives that we need to be aware of.
Share price volatility is normal in the ASX share market. We can't know precisely when it will strike, but we should keep in mind that declines do happen. If we arm ourselves with that knowledge, the declines won't seem as worrying when they occur.
So, amid these volatile times, let's explore whether the VAS ETF is a buy right now.
What has been happening recently?
The Vanguard Australian Shares Index ETF aims to track the S&P/ASX 300 Index (ASX: XKO), so it is invested in around 300 company holdings.
The fund typically invests heavily in two main market areas — ASX financial and mining shares — which comprise just over half of the portfolio.
The price of ASX bank shares has attracted plenty of commentary recently. A strong run in the last few months led them to trade at higher price/earnings (P/E) ratios than they have historically.
However, the last week has seen a sizeable retrace. Since 20 September, shares in Commonwealth Bank of Australia (ASX: CBA) are down 6.3%, Westpac Banking Corp (ASX: WBC) share price has fallen 5.2%, National Australia Bank Ltd (ASX: NAB) share price is down 5.6%, and ANZ Group Holdings Ltd (ASX: ANZ) share price has dropped more than 4.4%.
Meanwhile, the expensive valuation of the banks (and their decline) has been offset by Australia's big ASX iron ore shares looking cheap. The miners looked good value when the market appeared pessimistic.
It was never going to last forever, particularly if China launched an economic stimulus package. The Asian superpower recently announced various supportive measures.
With that, the miners rallied strongly as institutional investors appeared to swap their positions, selling out of some ASX banks and buying the miners. Since 23 September, the BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) share prices have climbed around 15% and the Fortescue Ltd (ASX: FMG) share price is up 17.6%.
Is it time to buy the VAS ETF?
As a net result of those movements, with banks down and miners up, I don't think the VAS ETF is any cheaper right now.
If I had $1,000 to invest in one ASX ETF today, I wouldn't pick the VAS ETF because I don't believe the major banks or miners will deliver strong compounding earnings growth due to their large size and limited growth options. According to Vanguard, the VAS ETF has delivered capital growth of an average of 3.4% per annum over the past decade.
However, regular VAS ETF investors should not let themselves be distracted by shorter-term events. For investors who want to regularly invest in the ASX share market, this can still be a satisfactory option with low-cost fees and decent total returns over the long term.
But I'd rather invest in internationally focused ETFs that can potentially deliver more capital growth, such as the Vanguard MSCI Index International Shares ETF (ASX: VGS) or the VanEck MSCI International Quality ETF (ASX: QUAL).
Investors could also choose some individual ASX shares for more growth potential.
