The Vanguard Australian Shares Index ETF (ASX: VAS) has climbed more than 10% higher in 2024 and looks to finish strongly for the year.
It is the only exchange-traded fund (ETF) tracking the S&P/ASX 300 Index (ASX: XKO), a collection of 200 large-cap and 100 small-cap Aussie shares.
It offers an advantage over long-term savings accounts in terms of providing capital growth.
But with 2024 delivering robust returns for Australian stocks, what's next for the VAS ETF in 2025? Let's see what the experts think.
A positive outlook for ASX shares
Market pundits are forecasting another year of reasonable gains for Australian shares, which could be positive for the VAS ETF.
Morgan Stanley has upgraded its year-end target for the S&P/ASX 200 Index (ASX: XJO) to 8,500 points, driven by an improved corporate profit outlook and a resurgence in the mining sector.
Whilst not the ASX 300 directly, the broker's view does provide good insight into the view of the market.
It expects a "similar scenario" to 2024 for ASX stocks over the next year, helped by "moderate growth and disinflation", which supports valuations.
We expect a similar scenario for Australian equities in 2025 as seen this year: a positive outlook although likely to lag behind major Developed Markets, particularly the US.
Our strategists have raised their year-end 2025 price target for the ASX 200 to 8,500 after lifting the base case multiple to 17.0x and forecasting a return to 10% earnings per share growth in 12 months time. However, for any meaningful upside from here, earnings trends need to start to improve.
Meanwhile, Dr Shane Oliver, Head of Investment Strategy at AMP Ltd (ASX: AMP), expects Australian shares to deliver returns of around 7% in 2025.
Growth should be supported by interest rate cuts from the Reserve Bank of Australia (RBA). Oliver predicts the ASX 200 will end the year at approximately 8,800 points versus 8,394 at the time of writing.
This could be positive for the ASX 300 and, in turn, the VAS ETF.
Tailwinds and challenges for the VAS ETF
The VAS ETF tracks the resource and bank-dominant ASX 300, meaning performance in these sectors is a requisite for index performance.
Equity Trustees sees potential headwinds for ASX markets next year. Flattening bank and mining earnings could also impact dividends. It says the main ASX dividend driver is the materials sector.
The outlook for both earnings and dividends for the domestic market is therefore heavily weighted to the performance of banks and resources.
[Bank] earnings are anticipated to be broadly flat due to the combination of modest credit growth, ongoing competition restricting net interest margins ongoing cost pressures and already cyclically low bad debt provisions.
But the RBA is expected to cut interest rates in 2025, which could support economic growth and equity markets. This could be a further tailwind to the VAS ETF.
Morgan Stanley projects three cuts in 2025, which could "be positive for risk assets".
As a result, 2025 is expected to be another strong year for risk assets, with moderate growth and disinflation supporting elevated valuations.
Time will tell what this means for the VAS ETF.
Foolish takeout
For long-term investors, the VAS ETF remains a low-cost, diversified way to access some of Australia's top 300 companies.
But there's more to it than simply buying an index fund. The broader investment strategy must be considered.
In the last 12 months, the ETF is up 16%.
