Vanguard Australian Shares High Yield ETF (VHY) is a high yield Exchange Traded Fund of 40 largest companies in the ASX 200. The key selection criteria in the underlying benchmark is the forecast dividend to be higher than the broader market. While the companies in the ETF is the double the number in the ASX 20 Index. It still can be considered a relatively concentrated fund.
Vanguard Australian Shares High Yield is a typical Vanguard product which means that it is low cost and provide a pure beta exposure. Vanguard does not have the option in selecting which companies goes into the fund. FTSE created the benchmark and VHY tracks the FTSE ASFA Australia High Dividend Yield Index religiously.
Some important features of VHY include:
- Company selection is based on forecast future dividend level.
- No single industry will make up more than 40% of the fund.
- No single company to comprise more than 10% of the fund.
- VHY or its index is precluded to include any Australian Real Estate Investment Trusts (A-REITS). Therefore it is pure ex property trust exposure.
Due to the relatively concentrated nature of companies listed on the Australian Stock Exchange. VHY provides an artificial index that investors can use to limit extent of financial exposure while maintain a higher dividend income stream.
Exhibit 1 above shows that the top 10 positions in the fund make up almost 80% of the asset value. 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.
While no sector can make up more than 40% of the fund. The ETF mirrors the broader market where financials make up a large portion of assets under management. This is followed by the perennial dividend stock, Telstra.
Exhibit 2 below shows the historical yield of the fund. VHY dividend is paid on a quarterly basis which provides consistent income stream throughout the year.
Over the period using the price the share goes ex-dividend. The average quarterly distribution is 1.50% and minimum of 0.70% and maximum during periods of market distress of 2.70%. VHY yield is particular enticing for Australian investors as most of the companies in VHY are Australian companies.
This means that 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.
If the dividend is cut, the company 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 Dates 2017/2018
First Distribution Ex-Distribution Date: 3 Apr 2017
First Distribution Record Date: 4 Apr 2017
First Distribution Payment Date: 20 Apr 2017
Second Distribution Ex-Distribution Date: 3 Jul 2017
Second Distribution Record Date: 4 Jul 2017
Second Distribution Payment Date: 18 Jul 2017
Third Distribution Ex-Distribution Date: 2 Oct 2017
Third Distribution Record Date: 3 Oct 2017
Third Distribution Payment Date: 17 Oct 2017
Fourth Distribution Ex-Distribution Date: 2 Jan 2018
Fourth Distribution Record Date: 3 Jan 2018
Fourth Distribution Payment Date: 17 Jan 2018