Monday, 22 June 2015

Vanguard All-World High Yield ETF Review

I’m always on the look-out for ways to diversify my portfolio. I also like to keep costs to a minimum. I was therefore interested in Vanguard’s global income ETF when it was launched just over 2 yrs back.

The FTSE All-World High Dividend Yield (VHYL) holds over 1000 higher yielding large and mid-cap companies listed all around the world. The largest weighting of 37% is USA followed by UK 12.3%, Switzerland 6.3%, Australia 4.7% - also France, Canada, Germany, Japan, China and Brazil.

Top 10 holdings are Exxon Mobil, Microsoft, Johnson & Johnson, General Electric, Nestle, JP Morgan Chase, Novartis, Procter & Gamble, Pfizer and Roche.

As with funds, all income is distributed so can be lumpy and unpredictable. For example, during the year to end June 2014, the distribution was $194.63 whereas over the past year the distribution has reduced to just $156.60 - that's just under 20% less in dollar terms. Unlike my investment trusts, I am never quite sure what income to expect at the end of each quarter - also there are FX considerations as the dollar distribution is converted to GB pounds. The current yield is 3.2%. The annual costs are very competitive at just 0.29% TER.

My original purchase price in June 2013 was £31.60 and earlier this year I topped up my holding giving an average price of £33.00. Annualised returns for the 2 yrs to end May 2015 are 6% p.a.

One advantage of holding this ETF within my Sippdeal ISA is the avoidance of the 0.20% per annum custody fee levied on Vanguard funds. Also, there is no 0.5% stamp duty to pay on purchase.

In my original post, I suggested it would be interesting to see how a passive global income index tracker compared with a managed global investment trust like Murray International. The answer so far is - very favourably!

2 yr chart  VHYL v Murray Intl.
(click to enlarge)

Lets hope Bruce Stout can turn things around over the coming year or two!

It will be interesting to see how the income distributions and total returns play out over time compared to some of my investment trusts. I am also interested to see how this ETF compares to my recently acquired equity/bond Vanguard LifeStrategy.

19 comments:

  1. I also own this ETF. However, as its focus is on big high yielders some commentators say these are 'bond proxies' and this ETF will fall in value much more than a plain all-share or FTSE100 tracker ( eg VUKE) when interest rates rise. Do you have thoughts on that concern?

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    1. Chris,

      An interesting observation. At the time this fund was launched, I was looking to diversify my portfolio and move to global equity income so this was an obvious candidate. As you may know, I hold quite a few UK focused investment trusts and also Vanguards UK Equity Income fund as well as several UK listed shares.

      I don't really pay much attention to 'commentators' - whether they are 'bond proxies' or will lag in value compared to a FTSE 100 index fund, nobody can predict. Interest rates were predicted to start rising in 2012, then for certain in 2013, definitely 100% for sure to rise in 2014.... so I will leave that to those who are far more intelligent than myself. I am hoping that if I maintain a balanced, well diversified portfolio and keep an eye on costs, I will not go far wrong!

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  2. VHYL is the only ETF I invest in - my aim at the moment is for it to be 5% of my fund portfolio and I've been happy with its performance so far, especially as its dividends go towards my dividend goal. I may look at other ETFs, not sure how things will play out as I get closer to retirement but still got a way to go yet!

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    1. Good to hear someone else has this ETF tucked away weenie. I was a little concerned to see the fall-off in income distribution in yr 2 - 20% is quite noticeable when you need income to pay the bills so fingers crossed for some uplift in the coming year.

      I see the weighting for US listed shares has increased so this may be a factor.

      BTW, have a good holiday/family reunion!

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  3. You wrote that "the current yield is 3.2%." but according to the factsheet the yield is 3.6%.http://www.docdroid.net/14uqq/loadpdf-42.pdf.html

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    1. I was just taking info from Vanguard's distribution page - https://www.vanguard.co.uk/uk/portal/detail/etf/overview?portId=9506&assetCode=EQUITY##pricesanddistributions

      In $ terms, the current yield looks to be around 3.0%.

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    2. Isn't it about taxation? I mean the fund must pay tax so 3,6% minus tax = 3,2% that is distributed. Is it right?

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    3. I really do not know too much about the way ETFs are taxed so will leave that for more knowledgeable people to comment.

      The yield % will change month by month - it reflects the annual distribution i.e. the 4x quarterly payments expressed as a percentage of the current share price of the fund. The total payments over the past year have been ~ $1.566, the current share price is $52.35. I am waiting to see the actual sterling distribution received.

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    4. I mean the fund receives dividends from a lot of companies from different countries. In a lot of countries dividends are taxed. The tax is subtracted from the payments. I am very curious about the truth.

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  4. I've just set my Dad up with a large dollop of VHYL for his retirement ISA. But he won't be relying on the dividends it throws off for income.

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  5. Hi, I just compared VHYL with CUKX (ISHARES VII PLC ISHARES FTSE 100 UCITS ETF (ACC)) and the latter seems to perform better, I have found the same for other 'dividend' ETF, they don't seem to perform as well as my old trusted FTSE100 (Acc) ETF. wht do you think?

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    1. G Scil

      Just wondering if you are comparing on a total return basis or just income?

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  6. You are right, I was comparing oranges with apples... the graph I had looked at did not take into consideration the dividends.
    Excluding dividends, from 1/6/13 to 1/7/15, VHYL is up 1.02% and CUKX by 6.12% but adding the dividends to VHYL (say 3% / year) VHYL maybe better off?
    VHYL charges 0.29%OCF(?), and CUKX 0.07% TER

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    1. Thanks for the clarification GS.

      VHYL has not been going for so long - just over 2 yrs which is quite a short period to compare. However just looking at the VHYL benchmark returns for say 3 yrs it is 47.6% compared to CUKX return of 29.7%.

      Looking at a little wider perspective and taking the Vanguard LS100 - the 3 yr return has been 57.5%.

      My preference for the UK market would be Vanguard's UK Equity Income fund which covers the FTSE 350 and has returned 55.8% to end May (maybe a little less by now!).

      The good thing about index funds is that everyone is free to choose which particular index they believe will provide them with the better returns.

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  7. vanguard cut the 0.2% entry fee, is that correct?

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    1. I do not think such a fee has ever been levied by Vanguard. The 0.2% fee in the article is the platform fee charged by AJ Bell for funds which does not apply to ETFs (or shares & ITs). Hope that clarifies?

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  8. Thanks for writing about this less talked about ETF. It gives me confidence that there are others who believe in this one.

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  9. As an expat based in Netherlands, I am 100% into VHYL currently holding 3500 shares. My goal is to provide an income stream for early retirement. I like the low cost and diversification. I too wish the income was more regular and of course the divs are in USD and there seems to be some fluctuation with EU/USD exchange rates. But for total simplification and diversification I like this ETF. Mark.

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