One of the biggest downside of managing your own dividend focused portfolio is making sure the portfolio reflect the latest changes in the market. VHY provides an means where investors can have a passive income fund where the underlying position changes as the market changes. Vanguard Australian Shares High Yield ETF (VHY) is a high yield Exchange Traded Fund which owns 60 largest companies in the ASX 200.
ETFs can provide exposure to various industry or sectors and in this particular instance factor exposure, dividend yield. VHY ETF’s key selection criteria is investing in companies with high dividends compared other companies listed on the ASX based on analyst forecast. In addition of including just high dividend stocks the ETF is restricted from:
- Owning more than 40% in any particular industry. This is most relevant for financial stocks as the Australian banks makeup the largest dividend payers.
- Each position is limited to 10% of the fund.
While the number of companies in the ETF is three times more than the ASX 20 Index. It still can still be considered a relatively concentrated fund.
ASX VHY Performance
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Vanguard Australian Shares High Yield is a typical Vanguard product which means that it is low cost and provides a pure beta exposure. VHY tracks the FTSE ASFA Australia High Dividend Yield Index created by FTSE and it tracks it religiously as the ETF manager does not deviate from the benchmark in any form.
One important feature of the fund is the exclusion of investing the Australian listed real estate trusts. This means the exposure are to income generated from business which is susceptible to ups and downs of the Australian economy and less to changes to interest rates which the real estate sector is particularly prone to.
Due to the relatively concentrated nature of companies listed on the Australian Stock Exchange the top 10 positions is similar to the wider market benchmark with banks and miners make up a large portion of the position.
The level of concentration risk is in the eye of the beholder whether it is international diversified exchange traded fund with 500 companies to less than 10 position in the portfolio. There is no wrong level, the right level of concentration is how comfortable you are with your portfolio risk taking common sense into consideration.
VHY dividend is paid on a quarterly basis which provides consistent income stream throughout the year.
ASX VHY Dividend History
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The fund invests in some of the largest Australian companies which means the dividend paid contain a large portion of franking credits. Thus the true VHY yield is much higher than the face value.
One important risk investors should be aware of is the inherent bias of the fund selling companies at a loss. ASX companies are included in the index based singularly on their dividend policy. This means that only because the yield looks enticing today does not mean that it will last in the future. The fund offset some of this risks via investing based forecast dividends. However forecasts will always differ from reality.
If companies cut dividends then they will be removed from the fund. However dividends are usually cut when the company gets into financial trouble which means that most investments will be sold at a loss. Usually this is offset by the capital growth and dividend received from the remaining shares in the portfolio.
VHY Distribution Periods
ETF dividends are paid quarterly which can be roughly separated in to the following periods.
Q1 : October
Q2 : January
Q3: April
Q4: July