Key takeaways:

• The Vanguard Australian Shares High Yield ETF is the largest and most popular yield-focused ETF on the ASX, and also a favourite in the Selfwealth community

• VHY has significantly outperformed peers SYI and IHD over the last five years and since inception, despite charging a higher management fee than iShares' IHD

If you missed the last edition of our ETF insights series, we profiled two of the most popular ASX-listed high growth ETFs in the Vanguard Diversified High Growth Index ETF (ASX: VDHG) and the BetaShares Diversified All Growth ETF (ASX: DHHF).On this occasion, we're turning our attention to another theme that resonates with Aussie investors - dividends. With that, we're covering the ins and outs of the Vanguard Australian Shares High Yield ETF (ASX: VHY), SPDR MSCI Australia Select High Dividend Yield Fund (ASX: SYI), and the iShares S&P/ASX Dividend Opportunities ETF (ASX: IHD).

Keep reading to learn the most important aspects of these yield-focused funds.

Fund Objective

The investment objective of Vanguard Australian Shares High Yield ETF is to track the return of the FTSE Australia High Dividend Yield Index before taking into account fees, expenses, and tax. As such, VHY offers exposure to ASX-listed shares from a broad range of industries with higher forecast dividends relative to other stocks.

Meanwhile, the SPDR MSCI Australia Select High Dividend Yield Fund seeks to closely track, before fees and expenses, the returns of the MSCI Australia Select High Dividend Yield Index. This index is designed to reflect the performance of ASX-listed stocks with relatively high dividend income and quality characteristics, with the potential for franking credits.

Rounding out the trio, iShares' S&P/ASX Dividend Opportunities ETF aims to provide investors with exposure to an index that measures the performance of 50 ASX-listed, ESG-screened stocks that offer high dividend yields, before fees and expenses. 

Fund Profiles and Holdings

By far the largest of the three funds, VHY oversees roughly $2.9 billion in funds under management (FUM). This has been accumulated across a period of 12 years, with the ETF first admitted to the ASX back in May, 2011. The fund popularity is such that it is a regular sight among the list of the most held ETFs on the Selfwealth platform.

It is a different story for SYI and IHD, which are smaller funds, despite being around longer than their better-known peer. The SPDR MSCI Australia Select High Dividend Yield Fund holds approximately $378.9 million in funds under management, while the iShares S&P/ASX Dividend Opportunities ETF has approximately $290.1 million in net assets. Both made their way to the ASX in late 2010.

ASX data across all broker participants underpins VHY dominance as a yield-focused fund. During March, the Vanguard Australian Shares High Yield ETF attracted $93.2 million in fund inflows, with funds under management increasing $75.2 million for the month. More than 12,000 trades involving VHY were made across all market participants.

Net inflows were proportionally higher for SYI than VHY in March at $15.5 million, contributing towards FUM growth of $17.8 million. However, iShares' IHD managed net inflows of just $5.2 million and FUM growth of $5.3 million for the month. Trades were skewed towards the former, with just 723 trades in IHD across all market participants, yet over ten times that amount for SPDR fund.

Across the three funds, there is some degree of overlap in terms of common holdings, particularly at the top end of weightings, where the banks and iron ore majors are a common sight, as shown below. 

At the time of writing, security diversification is greatest across VHY, where there are 72 individual holdings within the fund, whereas SYI features 34 different holdings and IHD holds 50 unique securities. 

Nonetheless, the weightings of the top 10 for VHY and SYI are broadly the same at 63.78% and 62.04%, but IHD is notably higher at 68.48%. It should be noted that IHD applies an ESG screen to avoid companies engaged in serious ESG controversies and select activities based on revenue thresholds.

Top 3 Holdings for VHY^:

1. Commonwealth Bank - 10.7%

2. Wesfarmers - 9.4%

3. BHP - 9.6%

Top 3 Holdings for SYI:*

1. Commonwealth Bank - 8.9%

2. Rio Tinto - 9.1%

3. BHP - 9.6%

Top 3 Holdings for IHD:*

1. NAB - 6.7%

2. Woodside Energy - 6.4%

3. Westpac - 5.8%

^ = as at Mar 31, 2023; * = as at May 8, 2023

Performance and Distributions

Since inception, Vanguard VHY has achieved a gross return of 9.06% p.a. After taking into account relevant costs and management fees, the fund total return since inception is 8.79% p.a.

In comparison, the SPDR MSCI Australia Select High Dividend Yield Fund has yielded an average total return of 7.34% p.a. SPDR has itemised this figure for contributions between growth and distributions, with 0.97% p.a. for the former, and 6.37% p.a. for the latter.

Returns for the iShares S&P/ASX Dividend Opportunities ESG Screened ETF lag those of its peers. Since inception, the fund has returned 4.72% p.a, which corresponds with a cumulative return of 77.24% over that period.

Across the last five years, total returns for VHY, SYI, and IHD are 9.04%, 7.67%, and 4.94% respectively.

Remember, past performance is not indicative of future performance. The above results merely represent a picture of past results.

As yield-focused ETFs, each of the trio pay quarterly distributions to unitholders. As always, the amount and timing of distributions will vary from period to period, and there may even be periods where no distributions are made.

Fees

Of the three funds, the iShares S&P/ASX Dividend Opportunities ESG Screened ETF charges the lowest management fee at 0.23% per annum, which includes indirect costs. 

The management fee for the Vanguard Australian Shares High Yield ETF is slightly higher at 0.25% p.a., while SPDR yield fund charges unitholders a management cost of 0.35% per annum.

Based on the previous financial year, Vanguard estimates a net transaction cost of 0.01% per annum, while SPDR and iShares disclose fees of 0.04% p.a. and 0.02% p.a. for SYI and IHD respectively. 

Please refer to the relevant Product Disclosure Statements for up-to-date details on costs and expenses, which may be deducted from the fund assets as and when they are incurred. 

Summary

Between VHY, SYI, and IHD, investors have access to three funds offering exposure to ASX-listed stocks that pay above-average dividends, with distributions occurring quarterly. Vanguard Australian Shares High Yield ETF is the dominant fund in this segment, with net assets between nine to ten times as large as those held by SPDR and iShares within SYI and IHD.

While the three funds contain similar holdings, there is greater diversification in VHY, which offers exposure to a larger list of names. This may partly explain its clear outperformance since inception, and over the last five years. On the other hand, the iShares S&P/ASX Dividend Opportunities ESG Screened ETF is the most economical fund among the trio, charging the lowest management fee. 

VHY:

• Tracking: FTSE Australia High Dividend Yield Index

• Net Assets: $2.9 billion

• Top 10 Holdings (weight): 63.78%

• 5-Year Performance (p.a.): 9.04%

• Distributions: Quarterly

• Management Fees (p.a.): 0.25%

SYI:

• Tracking: MSCI Australia Select High Dividend Yield Index

• Net Assets: $378.9 million

• Top 10 Holdings (weight): 62.04%

• 5-Year Performance (p.a.): 7.67%

• Distributions: Quarterly

• Management Fees (p.a.): 0.35%

IHD:

• Tracking: S&P/ASX Sustainability Screened Dividend Opportunities Index

• Net Assets: $290.1 million

• Top 10 Holdings (weight): 68.48%

• 5-Year Performance (p.a.): 4.94%

• Distributions: Quarterly

• Management Fees (p.a.): 0.23%