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. However, one important question that needs to be addressed is which ETF to choose. In this article we are comparing two ETFs on one hand we have the Vanguard All-World High Dividend Yield UCITS ETF (VHYL/ VHYD) and on the other, we have the Vanguard All-World ETF (VWRL). In this article, we look at a comparison and my personal review related to these ETFs and how they stand against each other, through the lens of primarily a dividend investor. I also have an article dedicated to the Vanguard All-World High Dividend Yield UCITS ETF (VHYL) and the Vanguard All-World ETF (VWRL) separately.
Before we start we need to clarify what are exchange-traded funds, 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 is tracking.
The Vanguard All-World High Dividend Yield UCITS ETF (VHYL) can be categorized as a dividend ETF while the Vanguard All-World ETF (VWRL) can be considered more of a general market ETF
The current benchmark/portfolio
Vanguard All-World High Dividend Yield UCITS ETF (VHYL)
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 and the methodology in more detail on their site.
Vanguard All World ETF (VWRL)
The fund seeks to track the performance of the FTSE All-World Index. Generally, The index measures the market performance of large- and mid-capitalization stocks of companies located around the world. It would be good to investigate the benchmark in more detail and the methodology in more detail on their site.
VHYL currently holds about 1781 stocks which provide more than plenty of diversification in my opinion. Regarding 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. While VWRL currently holds about 3800 stocks. Regarding geographical diversification, this ETF provides plenty of diversification with about 60% coming from the United States, and the rest is distributed to various parts of the world such as Japan at 6% and the United Kingdom at 4%.
Overall, I find both ETFs provide plenty of diversification in terms of total holding as the number of stocks under these ETFs is more than enough. While the geographical diversification is quite similar with VWRL having more stocks based in the US (60%) vs VHYL only having 40% US-based stocks.
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 14-16% of the total holdings which does not necessarily give the best overview, however, this is to be expected with more than 1000 holdings each. The top 10 holdings are:
The top 10 holdings (VHYL)
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%
The top 10 holdings (VWRL)
Apple Inc. - 4.11%
Microsoft Corp. - 3.34%
Amazon.com inc. - 1.93%
Tesla Inc - 1.2%
Alphabet Inc. Class A - 1.11%
Alphabet Inc. Class C - 1.03%
UnitedHealth Group Inc. - 0.83%
Johnson & Johnson - 0.72%
Exxon Mobil Corp. - 0.69%
Taiwan Semiconductor Manufacturing Co. Ltd. - 0.68%
We can see that VHYL is indeed focused more on dividend stocks while VWRL has more growth-oriented stocks and is a bit more balanced vs strictly income. Both have what I consider quality stocks, however, VWRL has more "exciting" types of stocks.
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 VHYL
Financials - 24.8%
Consumer staples - 12.1%
Health Care - 11.3%
Energy - 10.2%
Industrials - 10%
The top 5 sectors VWRL
Technology -21.6%
Financials - 14.3%
Consumer discretionary- 14.2%
Industrials - 12.7%
Health Care - 11.3%
For my personal taste, VHYL has 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, which is the highest percentage for VWRL. This was to be expected since VHYL is more of a dividend ETF but the percentage allocated to financials is too high for my taste and would have liked to see other sectors boosted such as consumer staples. VWRLs allocation matches my taste more closely overall.
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. The All-World ETF has an expense ratio of 0.22% which is better overall.
However, VHYL is more of a specialized ETF compared to VWRL. One thing to keep in mind is that these are both world ETFs, meaning they are nicely spread around the world and this may be one of the reasons why they are 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 in the Long term.
Performance
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 in the last 5 years VHYL has increased over 13%, while VWRL has increased about 32% However, looking at a longer period these funds have performed better than this.
The starting dividend yield at the time of writing is 3.6% for VHYL. In 2018 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.
For VWRL The starting dividend yield at the time of writing is 2% In 2018 this fund was paying out 1.48 Euro and this last year it paid out 2.01 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 36% compared to 2018, which is about more than a 6% compound annual growth rate. Based on this information, I conclude that there was a decent appreciation in the stock price, however, the income increases are quite interesting as well based on my own estimates and calculation.
Strictly looking at the dividend yield VHYL provides a higher current dividend yield than VWRL, which means more money will be distributed right now, however, VWRL has more overall capital growth and more dividend growth, which may be more attractive in the longer term as it will compound over time, this is all based on past data so there are no guarantees.
Conclusion
In the end, I think the allocation has all to do with the timeline and goal. I currently hold both ETFs as a way to enjoy the benefit of both over a longer term and to reach my target allocation in terms of growth and dividend. Furthermore, I like the allocations with VWRL more, although VHYL top holdings are also good.
I hold these ETFs in my portfolio as I like the dividend growth investing approach, however, I don't solely hold these ETFs. 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 /dividends in over 20 years or so. That means that in my opinion focusing only on these ETFs would not provide me with the best outcome that fits my goals and taste.
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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