IVV, VGS, VAS: Which ASX ETF produced the better returns in 2025?

These three ASX exchange-traded funds (ETFs) are among the biggest by market cap on the Australian share market today.

How do they compare in terms of their 2025 performance?

Vanguard Australian Shares Index ETF (ASX: VAS) rose by 7.05% and gave a total return, including dividends, of 10.07% in 2025.

The Vanguard MSCI Index International Shares ETF (ASX: VGS) lifted 9.81% and gave a total return of 13.34% in 2025.

The iShares Core S&P 500 AUD ETF (ASX: IVV) rose 8.24% and delivered a total return of 10.13%.

So, on the face of it, VGS produced the best returns of the ASX three exchange-traded funds.

But there's a hidden element in these results: the impact of the currency exchange.

How the weakening US dollar impacted ASX ETF returns

The higher Australian dollar (AUD) against a weaker US dollar (USD) dampened down returns from ASX ETFs holding US stocks last year.

Case in point: IVV ETF returned 10.13% to investors, yet the index it tracks, the S&P 500 Index (SP: INX), returned 17.88% in USD terms.

For the past few years, the AUD/USD currency exchange worked in our favour and magnified the returns for ETFs holding US stocks.

Today, things are different.

The US dollar has weakened against the Australian dollar for several reasons.

They include expectations of continuing interest rate cuts in the US, while Australia's rates are expected to remain on hold or even rise.

Strongly rising commodity prices are also supporting the AUD by boosting our export earnings.

Central banks worldwide are also concerned over rising US debt and the USD's long-term role as a store of value.

That's a prime reason why gold has gone crazy over the past two years — rising 65% in 2025 and 27% in 2024 — because central banks are diversifying away from the USD and into precious metals, and investors have followed them after seeing the gold price rapidly rise.

The result: At the start of 2025, the Aussie dollar was about 62 US cents, and rose to about 67 US cents by the end of the year.

Why does 5 cents make such a big difference?

You may wonder how a 5-cent rise could reduce returns from 17.88% (S&P 500 index returns in USD) to 10.13% (IVV ETF returns in AUD).

The answer is that a 5-cent move represents about an 8% gain in the AUD. That gain eats into the USD returns.

So, the 17.88% growth in the S&P 500 is effectively worth only about 9.88% in AUD.

Then we add dividends, which brings the total return for ASX investors holding IVV ETF units to 10.13%.

Investors may wish to consider hedged ETF options if they believe the AUD is likely to remain stronger than the USD for a while.

ETF provider iShares offers a hedged version of IVV. It's called iShares S&P 500 (AUD Hedged) ETF (ASX: IHVV).

As you can see below, IHVV (the purple line) began outperforming IVV last year.

The post IVV, VGS, VAS: Which ASX ETF produced the better returns in 2025? appeared first on The Motley Fool Australia.

Motley Fool contributor Bronwyn Allen has positions in Vanguard Msci Index International Shares ETF and iShares S&P 500 Aud Hedged ETF. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended iShares S&P 500 ETF. The Motley Fool Australia has recommended Vanguard Msci Index International Shares ETF and iShares S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2026