I tried comparing Vanguard's ETF returns to the index the ETF is tracking and it looks like their ETF highly outperformed the index?

The S&P/ASX 300 index only grew less than 29% total in 5 years, roughly 5.5% annualized growth.

Vanguard's ETF (scroll down to Australian Shares, VAS, S&P/ASX 300) claims 8.85% annualized returns, which is 54% total growth over 5 years.

Why is there such a big difference?

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    The index does not take into account the dividends paid by the stocks in the index; the ETF does. So the ETF return outperforms the index return. Commented Mar 4, 2018 at 4:21
  • There is also a Total Return variant of the ASX 300, called ASX 300 Accumulation Index. See also this answer of mine about index variants. – @Dilip Sarwate: Make an answer from your comment?
    – chirlu
    Commented Mar 4, 2018 at 18:56
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    And if you download their 2-page 'fact sheet' it shows performance for their benchmark, which is the index including reinvestment of dividends per footnote B, at 8.99% for 5 years, versus 9.01% for the fund 'gross' (before fees and taxes, which of course don't apply to the index). Commented Mar 4, 2018 at 19:35

2 Answers 2


Repost of comment as an answer (as per Chirlu's suggestion).

The index does not take into account the dividends paid by the stocks in the index; the ETF does. So the ETF's return outperforms the return of the index.


An ETF can be detached from the value of the underlying index. The index is obviously formulated based on the stocks that make up the index. So the value of those stocks can grow at a rate that differs from the growth in the demand for the ETF. The ETF in it of itself functions like a stock, selling based on supply and demand. So although it may track an index (rise when the index rises, fall when the index falls since it is made up of some of the underlying securities in the index) the actual demand for that ETF may differ from the stocks that make up the index. This can cause a divergence in price, although they will almost always go in the same direction. This means an ETF can in theory fall by more than the index falls, or rise by more than the market rises.

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    In principle, that’s possible, but in practice, arbitrage will immediately bring the ETF price back towards the expected value. Only in a severe financial crisis this might fail. So it’s not a reasonable explanation for the scenario from the question.
    – chirlu
    Commented Mar 15, 2018 at 21:14

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