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”

Vanguard Australia

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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) 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).

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;

ABC	ADELAIDE BRIGHTON LTD.
AGL	AGL ENERGY LTD.
AWC	ALUMINA LTD.
AMP	AMP LTD.
APE	AP EAGERS LTD.
APA	APA GROUP
ALX	ATLAS ARTERIA LTD
AZJ	AURIZON HOLDINGS LTD
AST	AUSNET SERVICES
ANZ	AUSTRALIA & NEW ZEALAND BANKING GROUP LT
BOQ	BANK OF QUEENSLAND LTD.
BEN	BENDIGO AND ADELAIDE BANK LTD.
BHP	BHP BILLITON LTD.
BLD	BORAL LTD.
CGF	CHALLENGER LTD./AU
CIM	CIMIC GROUP LTD NPV
CCL	COCA-COLA AMATIL LTD.
COL	COLES GROUP LIMITED
CBA	COMMONWEALTH BANK OF AUSTRALIA
CWN	CROWN RESORTS LIM NPV
CSR	CSR LTD.
DOW	DOWNER EDI LTD.
FMG	FORTESCUE METALS GROUP LTD.
GMA	GENWORTH MORTGAGE INSURANCE AUSTRALIA LT
GUD	GUD HOLDINGS LTD.
GWA	GWA GROUP LTD.
HVN	HARVEY NORMAN HOLDINGS LTD.
ING	INGHAMS GROUP LTD.
IAG	INSURANCE AUSTRALIA GROUP LTD.
IFL	IOOF HOLDINGS LTD.
IPH	IPH LTD.
IRE	IRESS LTD.
JBH	JB HI-FI LTD.
MQG	MACQUARIE GROUP LTD.
MFG	MAGELLAN FINANCIAL GROUP LTD.
MPL	MEDIBANK PVT LTD.
MTS	METCASH LTD.
MIN	MINERAL RESOURCES LTD.
MGX	MOUNT GIBSON IRON LTD.
NAB	NATIONAL AUSTRALIA BANK LTD.
NHC	NEW HOPE CORP. LTD.
NEC	NINE ENTERTAINMENT CO. HOLDINGS LTD.
ORA	ORORA LTD
PGH	PACT GROUP HOLDINGS LTD.
PDL	PENDAL GROUP LTD
PRN	PERENTI GLOBAL LIMITED
PPT	PERPETUAL LTD.
PTM	PLATINUM ASSET MANAGEMENT LTD.
QBE	QBE INSURANCE GROUP LTD.
RIO	RIO TINTO LTD.
SFR	SANDFIRE RESOURCES NL
SSM	SERVICE STREAM LTD.
SIQ	SMARTGROUP CORP. LTD.
S32	SOUTH32 LTD.
SGR	STAR ENTERTAINMENT GRP LTD
SUN	SUNCORP GROUP LTD.
SUL	SUPER RETAIL GROUP LTD.
SYD	SYDNEY AIRPORT
TAH	TABCORP HOLDINGS LTD.
TGR	TASSAL GROUP LTD.
TLS	TELSTRA CORP. LTD.
TCL	TRANSURBAN GROUP
WES	WESFARMERS LTD.
WBC	WESTPAC BANKING CORP.
WHC	WHITEHAVEN COAL LTD.
WPL	WOODSIDE PETROLEUM LTD.

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 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.

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 can become difficult then to quantify your portfolio risk – and it also does fall right into the trap of stock picking territory.

Am I going to be adding Vanguard Australian High Yield ETF (ASX:VHY) to my 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.

Financial Disclaimer

Financial Disclaimer: CaptainFI is NOT a financial advisor and does not hold an AFSL. This is not financial Advice!

I am not a financial adviser and I do not hold an Australian Financial Services Licence (AFSL). In this article, I am giving you factual, balanced information without judgment or bias, to the best of my ability. I am not giving you any general or personal financial advice about what you should do with your investments. Just because I do something with my money (or use a particular service or platform) doesn’t mean it is automatically appropriate for your personal circumstances. I do not recommend nor endorse any financial or investment product, and my usage or opinion of any product should not be interpreted as an endorsement, advertisement, or intent to influence.

I can only provide factual information based on my journey to Financial Independence, and that is provided for general informational and entertainment purposes only. I make no guarantee about the performance of any product, and although I strive to keep the information accurate and updated as it changes, I make no guarantee about the correctness of reviews or information posted.

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