VHY ETF Review: Aussie Heavyweights Dividend ETF vs Peers Performance

In this video, I'm going to provide a complete overview of the VHY ETF, which is really popular among Australian

dividend investors. But not only that, I'm going to compare the returns of VHY to some of its peers and show you why

you should maybe think twice before investing in VHY. So, I'm nicknaming VHY the Aussie Heavyweights ETF because of

its significant exposure to the mining and banking sectors. And VHY is the Vanguard Australian Shares High Yield

ETF. And this ETF aims to give investors exposure to companies have a higher dividend forecast relative to other ASX

listing companies. VHY currently has $8 billion in assets under management, which is basically the size of the ETF,

the size of the shares that it's holding. And in terms of that size compared to its peers, this puts it

about eighth on the list of Aussie ETFs. And what's really interesting is that this ETF has moved up the list quite

significantly since the last time that I reviewed it. I'll leave a link in the description to that video. So, what this

means is that the values of the shares in this ETF have increased quite significantly. This ETF was launched in

2011, which means we have a good amount of historical data to review, which I'll go through later in the video, and the

current share price at the time of filming is around $86 per share. The management fee for VHY is 0.25%

which is quite in line with what other ETFs are charging in Australia. So what this means for every $1,000 you have

invested you'll pay $2.50 in a management fee. But the good news is you don't pay this out of pocket. It's

deducted from the fund each year before you receive your dividends. This fund is doiciled in Australia which means it is

regulated by Australian law. So that should give you a little bit of peace of mind. What this also means is that each

year they send you a statement at the end of the financial year that is really really helpful for you in completing

your tax return. Makes things much simpler. Let's now talk about some of the holdings. This ETF holds around 92

different stocks with quite a bit of exposure to the mining and banking sectors. And at the time of filming, the

top 10 are companies like Commonwealth Bank, BHP, Westpak, National Australia Bank, Rio Tinto, A&Z, Telra, Woodside

Energy, McQuary Group, and Trans Urban Group. And this top 10 is pretty much the same as the last time that I

reviewed the ETF. It's just the order and the percentage holding of some of the stocks that has changed. And you can

download a full list of the companies that VHY holds from their website. Now, we get to the important stuff. Let's

talk about performance and dividend yield. So, the average dividend yield for this ETF, which is the dividends

paid divided by the share price, the average long-term dividend yield is around 6%. So, on a $10,000 investment,

that's roughly $600 a year in dividends. And these dividends are paid out quarterly to you. And as this ETF holds

Australian companies, when they pay dividends, they typically also pay a franking credit. And Australians love

their franking credits. And what that effectively means is a portion of the tax on the dividend has already been

paid for you and they're passing that on to you as a credit. So depending on what your personal tax bracket is, you may

just need to pay a little bit of top-up tax. Franking credits are quite unique to the Australian tax system and big

Australian companies typically also pay franking credits. Talking overall performance, since inception, this ETF

has averaged around a 10% return per year. So what that means is because the average dividend yield is 6%. The extra

4% is capital growth or an increase in the stock price. That's not too bad, but I'll compare that to some of its peers

later on in the video. And this is the VHY fact sheet um available on their website and it it really breaks down the

return for you. So here you can see what portion is related to growth. Um this is this column here is the distribution or

the dividend yield return and the ETF total. And what we can see is from inception it's averaged around 10%

return per year. Let's now talk about some of the pros and cons. These are big Australian companies which is why you're

getting such a high dividend yield. Big Australian companies typically pay big Australian dividends. However, these

companies do not pay out all their profits as a dividend. When companies do pay out all their profits as a dividend,

you're typically only limited to the dividend yield as your return. So, because they're not paying out all their

profits, hopefully you should also get a little bit of growth, a little bit of capital growth in the share price. This

ETF has a pretty good balance between sectors such as between mining and the big banks, but it is heavily focused on

Australia. So, you are missing out on that technology exposure like if you had invested in the United States, for

example, and it's run by a very well- reggarded company in Vanguard. Let's now compare VHY to some of its peers. So, a

dividend yield of 6% would be considered to be quite a high dividend yield. There are a few ETFs that pay a slightly

higher dividend yield. For example, there's one ETF called SYI, which is much more focused around the big banks,

which has a close to a 7% dividend yield, or another ETF is called QAX that has a slightly higher dividend yield.

However, one really important thing to consider is your investing goals. If you're looking just for passive income

to receive cash on a regular basis, then I can understand that while you might try and chase the highest dividend

yield. However, if your investment goals are more focused around generating wealth more holistically, then I would

say total return, which is dividend yield plus increase in the share price, is a much more important metric to focus

on than just the dividend yield itself. Because the advantage of growth in the share price is that you don't pay tax on

that until you sell the shares. Every time you receive a dividend, typically you pay tax on it. However, when your

shares increase in value, you typically don't pay tax until you actually sell the shares. So, you're deferring that

taxing point to later in the future. And another important point, the long run return of the Australian stock market is

around 13% peranom. So a lot of these dividend focus ETFs cap out at around 10% return perom. And the reason for

that is you're paying for certainty. You're sacrificing perhaps some capital growth for a regular consistent

dividend. And because you're paying for that certainty, you're limiting yourself and you're capping yourself at around

that 10% mark. And as you can see, VHY is lower than the overall return of the Australian share market. So, make sure

you keep that in mind when you're making decisions around investing. What are your investing goals? Are you looking to

generate wealth more holistically, more in more totality, or are you at that stage of your life where you're looking

to invest in passive income ideas? If this video was helpful and you learned something new, please give it a like.

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keep in mind, I'm not a licensed financial adviser. This video is for education and entertainment purposes

only. All I'm simply doing is presenting publicly available information to you in an easy and digestible format. Make sure

you do your own research before you make any investing decisions.