Vanguard Australian Shares High Yield ETF (ASX:VHY) Review

Vanguard Australian High Yield ETF (ASX:VHY) is an Exchange Traded Fund that is run by Vanguard Australia. It is a fund that focuses on returning a high dividend to its shareholders by owning a selection of established companies known for producing higher than usual dividends.

“The ETF provides low-cost exposure to companies listed on the Australian Securities Exchange (ASX) that have higher forecast dividends relative to other ASX-listed companies”

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Vanguard Australian High Yield ETF (ASX:VHY)

Vanguard Australian High Yield ETF (ASX:VHY) aims to produce above industry average dividends to shareholders. It is important to remember that dividends are only one aspect of total shareholder return, which consists of both dividend yield and capital growth. This often means companies which provide higher dividends to shareholders do not experience as much capital growth; hence the delineation between growth or income stocks. This means VHY could be considered an income stock and might be suitable for someone seeking a more regular and higher dividend income to live off as opposed to portfolio capital growth which would then later be sold.

“Vanguard Australian Shares High Yield ETF seeks to track the return of the FTSE Australia High Dividend Yield Index before taking into account fees, expenses and tax.

Vanguard Australia’s Investment Objective statement for VHY

Details of the Vanguard Australian High Yield ETF (ASX:VHY)

Vanguard’s Australian High Yield ETF (ASX:VHY) holds 66 Australian companies that are mostly in the finance (banking), retail / service, resources and industrial categories. These are considered well established, blue chip companies which provide higher than usual dividend yield (but may not experience as high capital growth). The fund currently has a management fee (MER) of 0.25% per annum which I consider relatively high for an ETF, but this is much lower than a comparible actively managed fund.

Vanguard Australian High Yield ETF (ASX:VHY) top 10 holdings

The top holdings in VHY are the Commonwealth Bank of Australia (finance), BHP Group Ltd. (Resources) and Wesfarmers Ltd. (Products and brands). The full top 10 list can be seen in the image below, which make up nearly 70% of all of VHY’s holdings.

Vanguard Australian High Yield ETF (ASX:VHY)
Top 10 holdings of Vanguard Australian High Yield ETF (ASX:VHY). Source: Vanguard.com

Vanguard Australian High Yield ETF (ASX:VHY) metrics

The metrics shown below detail the current state of the Vanguard Australian High Yield ETF (ASX:VHY) as of 31 Jul 2020. It shows that the ETF is accurately tracking the FTSE Australia High Dividend Yield Index and that the forecast dividend yield is 3.3% (or 4.4% grossed up with franking credits).

Vanguard Australian High Yield ETF (ASX:VHY)
Vanguard Australian High Yield ETF (ASX:VHY) Metrics

All Vanguard Australian High Yield ETF (ASX:VHY) holdings

The Vanguard Australian High Yield ETF (ASX:VHY) holds stocks in 66 different Australian companies. The current list of holdings is as follows;

ABCADELAIDE BRIGHTON LTD.
AGLAGL ENERGY LTD.
AWCALUMINA LTD.
AMPAMP LTD.
APEAP EAGERS LTD.
APAAPA GROUP
ALXATLAS ARTERIA LTD
AZJAURIZON HOLDINGS LTD
ASTAUSNET SERVICES
ANZAUSTRALIA & NEW ZEALAND BANKING GROUP LT
BOQBANK OF QUEENSLAND LTD.
BENBENDIGO AND ADELAIDE BANK LTD.
BHPBHP BILLITON LTD.
BLDBORAL LTD.
CGFCHALLENGER LTD./AU
CIMCIMIC GROUP LTD NPV
CCLCOCA-COLA AMATIL LTD.
COLCOLES GROUP LIMITED
CBACOMMONWEALTH BANK OF AUSTRALIA
CWNCROWN RESORTS LIM NPV
CSRCSR LTD.
DOWDOWNER EDI LTD.
FMGFORTESCUE METALS GROUP LTD.
GMAGENWORTH MORTGAGE INSURANCE AUSTRALIA LT
GUDGUD HOLDINGS LTD.
GWAGWA GROUP LTD.
HVNHARVEY NORMAN HOLDINGS LTD.
INGINGHAMS GROUP LTD.
IAGINSURANCE AUSTRALIA GROUP LTD.
IFLIOOF HOLDINGS LTD.
IPHIPH LTD.
IREIRESS LTD.
JBHJB HI-FI LTD.
MQGMACQUARIE GROUP LTD.
MFGMAGELLAN FINANCIAL GROUP LTD.
MPLMEDIBANK PVT LTD.
MTSMETCASH LTD.
MINMINERAL RESOURCES LTD.
MGXMOUNT GIBSON IRON LTD.
NABNATIONAL AUSTRALIA BANK LTD.
NHCNEW HOPE CORP. LTD.
NECNINE ENTERTAINMENT CO. HOLDINGS LTD.
ORAORORA LTD
PGHPACT GROUP HOLDINGS LTD.
PDLPENDAL GROUP LTD
PRNPERENTI GLOBAL LIMITED
PPTPERPETUAL LTD.
PTMPLATINUM ASSET MANAGEMENT LTD.
QBEQBE INSURANCE GROUP LTD.
RIORIO TINTO LTD.
SFRSANDFIRE RESOURCES NL
SSMSERVICE STREAM LTD.
SIQSMARTGROUP CORP. LTD.
S32SOUTH32 LTD.
SGRSTAR ENTERTAINMENT GRP LTD
SUNSUNCORP GROUP LTD.
SULSUPER RETAIL GROUP LTD.
SYDSYDNEY AIRPORT
TAHTABCORP HOLDINGS LTD.
TGRTASSAL GROUP LTD.
TLSTELSTRA CORP. LTD.
TCLTRANSURBAN GROUP
WESWESFARMERS LTD.
WBCWESTPAC BANKING CORP.
WHCWHITEHAVEN COAL LTD.
WPLWOODSIDE PETROLEUM LTD.
Total holdings in Vanguard Australian High Yield ETF (ASX:VHY)

Performance of Vanguard Australian High Yield ETF (ASX:VHY)

The Vanguard High yield ETF has provided investors with reliable dividend yield income however has not experienced appreciable capital gains over the past ten years; this is in line with general market performance and its worth realising that during March 2020 there was a significant global pandemic and recession which spooked investors who reacted accordingly, (market indexes have been down across the board).

Vanguard Australian High Yield ETF (ASX:VHY)
Ten year performance of Vanguard Australian High Yield ETF ASX:VHY

Vanguard High Yield ETF VHY vs Austalia index ETF VAS

Comparing the VHY Australian high yield ETF to a Vanguards standard Australian index fund VAS shows that the capital appreciation of VAS has been much more significant over the past ten years.

Vanguard Australian High Yield ETF (ASX:VHY)
Vanguard VHY vs VAS Capital growth comparative performance

Although, Capital return is not everything; The Total return of Vanguards VHY is the combination of both Dividend return and Capital Growth. Whilst the Capital Growth of VHY from 2010 to 2020 was only .52% per annum (compared to VAS 2.61%), the dividend Yield of VHY was a whopping 6.84% per annum (compared to VAS of 5.09%).

This actually means that VHY over the past ten years out performed VAS in terms of total return – VHY produced 7.14% per annum, wheras VAS produced 6.83% per annum. If we consider net return after management fee, even though VHY has a higher MER, it still comes out on top at 6.89% versus VAS 6.73%.

It is worth noting that past performance is not indicative of future performance, and future dividend or growth may differ.

Management fees of Vanguard Australian High Yield ETF (ASX:VHY)

Currently the Vanguard Australian High Yield ETF (ASX:VHY) has a Management Expense Ratio of 0.25% or 25 Basis points. This makes it one of the more expensive Vanguard ETFs to own (eg VAS has a MER of only 0.10% and Betashares A200 has a MER of 0.07%). To put this in perspective, a $10,000 holding would only cost you $25 per year in management fees, which means this is very low cost investment product overall..

Would I own Vanguard Australian High Yield ETF (ASX:VHY)?

I was surprised to see the last ten years of VHY performance outperform the standard index fund, as my own personal bias had me thinking that a dividend fund might sacrifice total return for an increased dividend. Vanguard Australia suggest that the fund might be appropriate for;

“Buy and hold investors seeking long-term capital growth, some tax effective income, and with a higher tolerance for the risks associated with share market volatility.”

Vanguard Australia

I think the strong dividend focus is attractive, however it I think it can become difficult then to quantify your portfolio risk – and it also does fall right into the trap of stock picking territory.

My current personal opinion is that for my personal investing strategy and the the ETFs I own, I want to stick to a purely index strategy – I achieve a strong dividend yield from both my standard Australian share market total index funds, as well as the Listed Investment Companies that I invest in. LICs are kind of similar to VHY in that they tend to bias towards dividend producing stocks, but instead of an ETF trust structure they are held in a company structure which does have some unique benefits (and disadvantages too).

Am I going to be adding Vanguard Australian High Yield ETF (ASX:VHY) to my ‘Get FIRE’d’ portfolio: No, not at the moment.

Summary of Vanguard Australian High Yield ETF (ASX:VHY)

Vanguard Australian High Yield ETF (ASX:VHY) is an Exchange Traded Fund that is run by Vanguard Australia. It is a fund that focuses on returning a high dividend to its shareholders by owning a selection of established companies known for producing higher than usual dividends, in line with the FTSE Australia High Dividend Yield Index. It has a Reasonable MER of 0.25% (which is still pretty high for an ETF though) and it has had solid 10 year performance. I personally dont invest in VHY currently, but in my opinion it is worth considering for your portfolio if you did not want to own a LIC.

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