VYMI Vs. VEU ETFs: Investing For Yield Or Return

VYMI Vs. VEU ETFs: Investing For Yield Or Return

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The Vanguard International High Dividend Yield ETF delivers on yield and return versus other ETFs with the same strategy. For High-Yield seekers, not worried about CAGR, VYMI rates a Buy.

The Vanguard FTSE All-World ex-US ETF is a pure non-US ETF with its prime goal of providing a return similar to its underlying index. For CAGR seekers, VEU performs well.

Since “yield” can be created by selling shares, this article includes an analysis of owning VXUS and selling shares to make up the current yield difference it has with VEU.

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peshkov/iStock via Getty Images (This article was co-produced with Hoya Capital Real Estate ) Introduction

As I moved from being a new investor when getting my first job to now being retired, my investment goals moved from accumulation and growth to preservation and keeping my income growing faster than inflation wants to erode its value. I am one of the privileged ones who built the proverbial three-legged retirement stool: Social Security, a pension (non-COLA), and a seven-figure nest egg. After starting Social Security just after my Full Retirement Age, or FRA, our income became bigger than our current expenses. A great place to be but with only a fraction of our income with any inflation protection, and the possibility of a drastic jump in expenses if our health “goes south”, the strategy of maintaining a positive cash flow as long as possible drives our asset selection not dedicated to preservation when the next 20+% correction comes and stays longer than the COVID-19 market reaction did.

This leads me to look for funds like the Vanguard International High Dividend Yield ETF ( VYMI ) with its 4.5% yield. Part of those searches always includes comparing such a focused-strategy ETF to one that invests in the same markets without that extra mandate. In this case, that included two other Vanguard ETFs: the Vanguard FTSE All-World ex-US ETF ( VEU ) and the Vanguard Total International Stock ETF ( VXUS ). Since the index used by VYMI is a sub-index of the one used by VEU, I chose that ETF for this article’s comparison analysis. Understanding the Vanguard International High Dividend Yield ETF

Seeking Alpha describes this ETF as: Vanguard International High Dividend Yield ETF is an exchange traded fund launched and managed by The Vanguard Group, Inc. It invests in public equity markets of global ex-US region. It invests in stocks of companies operating across diversified sectors. The fund invests in growth and value stocks of companies across diversified market capitalization. It invests in dividend paying stocks of companies. It seeks to track the performance of the FTSE All-World ex US High Dividend Yield Index VYMI started in 2016. VYMI has $3.5b in AUM and delivers a 4.5% yield to investors. Vanguard charges 22bps in fees. Understanding the Index used

A good place to start any analysis of an ETF that invests against an index is with that index. Unfortunately, I only found the full All-World Index description as FTSE doesn’t post some of their specialty indices: The FTSE All-World High Dividend Yield Index is designed to represent the performance of companies after implementing a forecast dividend yield ranking process. The index comprises stocks that are characterized by higher than average dividend yield based on the FTSE All-World Index, which is part of the FTSE Global Equity Index Series. The Index Methodology document provides the ground rules for constructing this Index. To the following rules, add US stocks are not considered. Designed to represent the performance of companies in the FTSE All-World Index after the implementation of a forecast dividend yield ranking process.

Consists of constituents from the FTSE All-World Index (Large Cap and Mid Cap) which have the highest forecast dividend yield.

The constituents exclude all Real Estate Investment Trusts and Mortgage Real Estate Investment Trusts. Also excluded are all companies which have not paid a dividend in a twelve-month period prior to the cutoff or have a current dividend yield of zero.

Forecasted dividend yield is used. To determine the forecast dividend yield, 12-month forward dividend per share forecast is calculated using the most recent I/B/E/S forecast DPS values prior to the review data cut-off date, divided by the underlying FTSE stock price at the review data cut-off date. This is done in February and August.

The remaining stocks are ranked by forecasted annual dividend yield and […]

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