VWRL versus VHYL

EnglishMohican

About 4 years ago, I bought some Vanguard World Equity ETF shares and some Vanguard World High Dividend ETF shares.

Over the 4 years, the VWRL dividend has been around 2% while the VHYL dividend has been about 3.1% but VWRL has increased in capital value by 50% while the VHYL shares have only increased by 25%.

With hindsight, it is easy to say I would have been better off over those 4 years if I has used all of the money to buy VWRL and forgot about VHYL. I am now trying to work out whether it is worth keeping the VHYL or whether to sell them and buy more VWRL.

I realise that capital value can go down as well as up, so I was lucky with the VWRL over the last 4 years. Maybe the capital value of the VHYL is more stable than the VWRL and will go down less in bad periods though it needs to go a down a lot less to compensate for the lack of gain in the good periods. I do not think that the 1% extra dividend would really brighten my day if the capital values all fell by 20%.

Are there other factors that I should include in the calculation and how would you decide whether to keep both?

bostonerimus

EnglishMohican wrote: »

About 4 years ago, I bought some Vanguard World Equity ETF shares and some Vanguard World High Dividend ETF shares.

Over the 4 years, the VWRL dividend has been around 2% while the VHYL dividend has been about 3.1% but VWRL has increased in capital value by 50% while the VHYL shares have only increased by 25%.

With hindsight, it is easy to say I would have been better off over those 4 years if I has used all of the money to buy VWRL and forgot about VHYL. I am now trying to work out whether it is worth keeping the VHYL or whether to sell them and buy more VWRL.

I realise that capital value can go down as well as up, so I was lucky with the VWRL over the last 4 years. Maybe the capital value of the VHYL is more stable than the VWRL and will go down less in bad periods though it needs to go a down a lot less to compensate for the lack of gain in the good periods. I do not think that the 1% extra dividend would really brighten my day if the capital values all fell by 20%.

Are there other factors that I should include in the calculation and how would you decide whether to keep both?

Why did you buy these funds? What are your goals? How do they fit in with the rest of your investments?

Tom99

[FONT=Verdana, sans-serif]This is like the story of the man who bought 2 lottery tickets, one of which won him £1m.[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]That week he looked very miserable and his friend ask him 'You have just won £1m why the sad face?'[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]The man replied 'I don't like wasting money and I don't know what came over me when I bought that second ticket'[/FONT]

Iain_For

A quick look at the top 10 holdings of VWRL vs VHYL will quickly tell you why they performed differently. One dominated by FANG, one not. They have different investment aims, one focussed on dividend yielding stocks, one not. No reason to expect them to have similar growth in the first place.

A_T

I'm wary of chasing yield which often sacrifices growth. Psychologically for many selling is not palatable but I'm not sure collecting dividends from a smaller principal is the way to go.

ColdIron

VWRL tracks the FTSE All-World Index, VHYL tracks the FTSE All-World High Dividend Yield Index which is a subset of the FTSE All-World Index and filters out low yielding companies, real estate and investment trusts. One is focussed on growth or total return and the other on income or yield, you would not expect them to have the same outcomes. What was your objective when buying these? If it was growth then stick to VWRL, if it was income to pay the bills then VHYL might be more suitable. You could argue that for income you could sell down your VWRL which works while we are in an extended bull run but if (when) growth flattens or goes into reverse you could be in the position of selling at a lower price than you bought or selling more units per pound than you purchased. How do these funds fit into your wider portfolio? Horses for courses

EnglishMohican

Can we generalise the question and take VWRL as an example of a growth focused fund and VHYL as an example of a yield focused fund.

VHYL's capital value rose by about half of VWRL's during a bull market. If we were in a bear market should I expect it to fall by half the value that VWRL would fall by - or is there no way to justify such a statement? If not half, then is some other ratio more justifiable?

If interest rates go up (UK only? whole world?) will dividends tend to rise? If not, then will the capital value of VHYL (targeted on yield a bit like a bond fund) tend to fall while VWRL remains growing? steady? or will it fall as well.

I am looking for generalised principles or reasonable expectations not hard and fast rules.

I read that large (stable) companies tend to pay better dividends while smaller companies show better percentage growth. Do you think the previous 4 years figures are a total anomaly caused by the incredibleness of the FANGS growth rate, or are there always enough big companies growing quickly for the figures I quoted in the OP to be repeatable and normal?

talexuser

This bull run has been manufactured by low interest rates, QE, and an increasing level of debt, an experiment to head off a 30s style depression after the credit crunch. No one knows if it can be diluted slowly and softly, or whether some e.g. Trump, Brexit or Middle East event will trigger another panic sell off which central banks cannot then control by interest rates. Perhaps the only certainty is it cannot carry on for another 10 years? Or maybe it can...?

DennisTenus

talexuser wrote: »

This bull run has been manufactured by low interest rates, QE, and an increasing level of debt, an experiment to head off a 30s style depression after the credit crunch. No one knows if it can be diluted slowly and softly, or whether some e.g. Trump, Brexit or Middle East event will trigger another panic sell off which central banks cannot then control by interest rates. Perhaps the only certainty is it cannot carry on for another 10 years? Or maybe it can...?

Exactly... no one knows!

Prism

EnglishMohican wrote: »

VHYL's capital value rose by about half of VWRL's during a bull market. If we were in a bear market should I expect it to fall by half the value that VWRL would fall by - or is there no way to justify such a statement? If not half, then is some other ratio more justifiable?

Its impossible to say what would happen in a bear market. Theoretically the higher priced stocks that you find in VWRL would fall futher but it entirely depends on the type of bear market. VHYL has more defensive stocks but also has more financials too, which stuggle in recessions. VHYL has a top two of J&J and Exxon whereas VWRL has Apple and Microsoft. Which would do better during a downturn? Interestingly out of those Apple the cheapest and could well fall the least on that basis. Its all guesswork really.

If interest rates go up (UK only? whole world?) will dividends tend to rise?

You would expect companies to earn less and their dividends therefore not grow as quickly. It is also likely that more people would move from equities into bonds or cash which would effect both funds. Its possible that income based stocks would be affected more as they are sometimes referred to as bond proxies.

Do you think the previous 4 years figures are a total anomaly caused by the incredibleness of the FANGS growth rate, or are there always enough big companies growing quickly for the figures I quoted in the OP to be repeatable and normal?

The FANG stocks only account for a small percentage of the total index, and only two of them are high growth really. Sometimes growth is better and sometimes its the dividend payers.

short_butt_sweet

there are times when high-yield shares (VHYL) do better than a simple tracker (VWRL), times when they do worse. abandoning high-yield shares because they've done worse for a few years smacks of performance-chasing - a tactic which tends to hurt investors' returns. so i don't think that's a good reason to switch.

however, is this mixture of VWRL and VHYL suitable for your aims? if it isn't, you should replace it to something which is suitable, regardless of short-term performance.

if it's suitable-ish, but you're not sure whether something else would be better, then i'd be inclined to stick with what you've got. too much chopping and changing is not good in investing, and 4 years is a short time.

in general, IMHO a mixture of VWRL + VHYL has some merit, as a simple way to limit how much you put in stocks/sectors/countries which might be in a bubble, since wildly overpriced stocks usually won't pay high dividends (though they could if the dividend is unsustainable). however, yield is not a very good measure of value, so i'm not sure how effective this method will be.

however, i wouldn't attempt to predict which of these 2 ETFs would do better in the next bear market. it depends.