Friday, 6 May 2016

Vanguard Asia Pacific ETF - Yr 1 Review

I am just back from a very relaxing holiday in Snowdonia National Park, certainly a good area to get away from it all. No wi-fi, no internet, no newspapers and no market info - a week of walking (weather permitting), eating and doing not very much at all, just what the doctor ordered. We rented a very comfortable cottage on a small working farm in Llanfair near Harlech - thanks again to Helen for her warm welcome, delicious sponge cake and providing everything needed for a great holiday - sadly all too short but I hope to return to explore the very imposing surroundings a little more later in the year.

sunset over Hengaeau

Batteries recharged and on with the blog!

This time last year I purchased this Asia-focussed ETF as a lower cost alternative to replace 3 of my income investment trusts - Aberdeen Asian Income, Henderson Far East and Schroder Oriental. Ongoing charges for these trusts were 1.25%, 1.21% and 1.34% respectively - an average of 1.26% compared to 0.22% for VAPX.

The trusts all provide a reasonable income yield, but at the back of my mind, I was wondering whether the higher yield came at the expense of overall performance.

Performance

The Vanguard Developed Asia Pacific ETF (VAPX) has given me exposure to roughly the same markets as the investment trusts. The principal areas of investment focus are Australasia (45%), S. Korea (25%), Hong Kong (22%) and Singapore (8%).

These markets have not fared well over the past year due mainly to the well documented slowdown in China.

The ETF shares were purchased for £15.80 just 12 months ago and the current price is £14.20, so my ETF shares are currently down 10.1%. In addition, I have received a total of 46.7p in dividends. Total return therefore including income for the year is -7.2%.

This Vanguard ETF has only been running for 2 years however the cumulative return for the index over the past 10 yrs is 70.5% - annualised cagr 5.5%.

So, how does this compare to the investment trusts? The sale price for each was

Henderson Far East 346p - current price 280p + dividends paid of 19.4p gives a total return -13.5%

Aberdeen Asian Income 201p - currently 162p + dividends of 8.5p  TR -15.2%

Schroder Oriental  206p - currently 189p + dividends of 8.0p  TR -4.3%

1 yr chart -v- Henderson Far East Trust

Average total return for the 3 trusts over the past year is -11.0%. If the trusts I still hold are any guide, most of the underperformance will be due to a widening of the share price discount to NAV.

The current yield on my Vanguard ETF is around 3.3% and paid quarterly. As with the Vanguard All World ETF (VHYL) I purchased in 2014, the dividend distribution amount is a little unpredictable which is something I am having to adjust to - I am not sure how much I will receive at the end of each quarter - but a minor inconvenience compared to the saving in charges.

With my ISA broker AJ Bell Youinvest there are no platform charges for holding ETFs compared to the 0.20% charge for holding funds. It is therefore a slight advantage to hold ETFs and investment trusts with Youinvest and my index funds such as Vanguard LifeStrategy and Vanguard UK Equity Income with Halifax Share Dealing who charge a flat fee of £12.50 p.a. regardless of the value of investments held.

Whilst the ETF may have provided a better total return than my investment trusts over the past 12 months, I am just wondering how it compares to a more globally diverse index fund such as VHYL ETF or even the LifeStrategy 60. For the year to end April the High Yield total return was -6.6% & and the VLS60 total return has been +0.33%.

So, the move to the ETF has worked out OK so far and the return is better than the combined investment trusts, just about par with the VHYL and a significant lower return compared to my LS60 which is to be expected given the 40% weighting to bonds.

Of course, one year is too brief to evaluate performance but it will be interesting to compare returns over the longer timeframe.

As always, slow and steady steps…

a good morning for a walk!


2 comments:

  1. Hi John, interesting move! As far as I know, there is only evidence of a few exceptions for holding active funds over ETF's or index funds over the long term so seems to really make sense. And I suppose whilst negative returns are never ideal (of course!), these appear comparably good results over a short time frame. Out of interest, do you dollar cost average into the ETF's you hold or is this prohibitive via your broker?

    Thanks!

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  2. wft,

    Welcome to the blog - first comment from Oz I believe!

    You are right, negative returns are never welcome however, if I had retained the 3 ITs my returns would be lower so I can draw a little comfort from that.

    I am now retired and draw an income from my investments so $/£ cost averaging does not apply.

    Thanks for stopping by and good luck with your investing journey - I wish I had started in my late 20s!

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