I like to write about ETFs as I have the majority of my stock portfolio in ETFs I find them a passive way to invest money and they don’t require much maintenance in terms of keeping track of stocks etc. In this article, we are looking at the Vanguard All-World High Dividend Yield UCITS ETF (VHYL/VHYD) and my personal review related to this ETF.
An exchange-traded fund is represented as a stock in the stock market so by holding this specific stock you are holding a basket of stocks that correspond to an index (portfolio benchmark) that it is tracking.
This is a dividend ETF and its main goal is to payout dividends to its shareholders at the time of writing is paying out a dividend yield of around 4% which is quite a high amount that recently got boosted by the market conditions. A yield on its own won't tell us the full story therefore we need to look further into it. The current benchmark/portfolio
The fund seeks to track the performance of the FTSE All-World High Dividend Yield, Generally, The index is a large- and mid-capitalization-weighted index providing broad exposure to the largest higher-yielding companies in developed and emerging markets. It would be good to investigate the benchmark in more detail and the methodology in more detail on their site.
The ETF currently holds about 1781 which provides more than plenty of diversification in my opinion. When it comes to geographical diversification, this ETF provides plenty of diversification with only about 44% coming from the United States, and the rest is distributed to various parts of the world such as Japan and the United Kingdom at 8% each. Overall I find it quite diversified as the United States is normally big in terms of companies in the stock market and in this case 44% some may even think that it is quite low compared to investing in, for example, an S&P500 ETF. In my opinion, I think it provides a nice diversity but with lower exposure to the United States than one may expect, as some international ETFs may provide above 50% exposure to the United States, as it is an International ETF I find it quite a nice middle ground in this case.
When looking at ETFs I find it crucial to have a look at the top 10 holdings to get a good feeling of the ETF and to see if it fits my profile and to see if these would be companies I would invest myself in individually. In this case, the top 10 holdings are representing almost 14% of the total holdings which does not necessarily give the best overview, however, this is to be expected with more than 1700 holdings.
The top 10 holdings:
Johnson & Johnson -1.81%
Exxon Mobil Corp. - 1.72%
JPMorgan Chase & Co. - 1.42%
Procter & Gamble Co. -1.41%
Nestle SA - 1.38%
Chevron Corp. - 1.33%
Home Depot Inc. - 1.27%
Pfizer Inc. - 1.09%
Coca-Cola Co. - 1.03%
PepsiCo Inc. - 1.02%
It is also important and interesting to look at sector diversification as it provides a good idea of how this fund is allocated through various sectors.
The top 5 sectors:
Financials - 24.8%
Consumer staples - 12.1%
Health Care - 11.3%
Energy - 10.2%
Industrials - 10%
Conclusion: Overall we can see that the holdings are quite diversified with plenty of stocks invested. The same goes with geographical diversification, I find it a nice middle ground for an international ETF. When it comes to the individual holdings overall I like the exposure to these companies, however, they only represent 14% of the total holdings, so it definitely is worth having a further look, However, looking at the sector diversification this gives a better overview on the total composition of the ETF. For my personal taste, there is too much exposure to financials and could definitely be lower at about 25%, and in the top 5, I am missing technology which is a departure from the total stock market. This was to be expected since it is more of a dividend ETF but the percentage allocated to financials is too high for my taste.
Expense Ratio
When it comes to the expense ratio, the lower the better and I would generally like to see an expense ratio below 0.5%. Overall in Europe, I find the ETFs available a bit more expensive than what is available in the United States. In this case, the All-World High Dividend Yield ETF has an expense ratio of 0.29% Which for me is not very low but also not too high. One thing to keep in mind is that this is a world ETF diversified across the world with the largest allocation being the United States @ 43.6% Meaning it is nicely spread around the world and this may be one of the reasons why it may be this expensive bundled with the total amount of holdings. I would personally prefer to have fewer holdings for a lower expense ratio as this will affect the overall performance.
Performance
Since this is a dividend ETF I want to look at both the capital appreciation, as well as the dividend growth over the last couple of years. Purely looking at capital appreciation over the last 5 years this fund has increased by over 7%. However, looking at a longer period this fund has performed better than this. When it comes to dividend payout, In 2018 this fund was paying out 1.61 Euro and this last year it paid out 2.08 Euro However, it is worth noting that the fund had an exceptional payout in June which was higher than the general trend the last year. In the last few years, this means that we had an increase of 29% compared to 2018, which is about more than a 5% compound annual growth rate. Based on this information, I conclude that there was an appreciation in stock price, however, the income increases are more interesting this time around, based on my own estimates and calculation.
Pros
I find that there is quite some nice diversification in this fund in terms of country allocation and amount of stocks.
Secondly, since it is an ETF I find it a good way to set and forget and is quite passive in nature.
Thirdly, it has a nice dividend yield and some growth in terms of the dividend in the past couple of years.
Fourthly, the top holdings are companies that I know and would like to have as part of my portfolio overall, however, it is to be noted that they only account for less than 14% of the total fund due to their diversification.
Cons
I find personally that sector diversification doesn’t fully fit my taste due to the high exposure to Financials and lower exposure to technology.
Secondly, the top 10 holdings are only representing 14% of the fund which means it may be over-diversified in my opinion, as we can see that for example, the sector diversification in the top 10 does not represent the overall sector allocation of the fund.
Thirdly, the overall growth of the fund hasn’t been stellar however this fund has a higher yield which oftentimes sacrifices on growth and looking at the dividend yield plus growth it has been decent, not great, of course, this all has to do with how much time you have to let it compound.
Fourthly, as with all funds, it is not possible to choose the individual holdings so basically whether you like a stock or not in a fund, you are holding that stock indirectly, with this I want to say that basically you are buying the winners and losers and try to achieve a market return based on the index.
Conclusion
I hold this ETF in my portfolio as I like the dividend growth investing approach, however, I don't solely hold this ETF due to the nature of this ETF and my time horizon. Basically, I have a strategic mix of ETFs and other stocks to make up my portfolio so that it fits my goals. I want to tap into my stocks or dividends in over 20 years or so. That means that in my opinion focusing only on this ETF would not provide me with the best outcome that fits my goals.
Disclaimer: I am not a financial advisor, this blog is centered around my opinion and should not be viewed as legal, professional, or financial advice. For me, it's crucial to supplement my knowledge with resources like videos, articles, and books to deepen my understanding of investing principles and strategies.
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