ETF High Yield ETF's for cashflow + a bit of growth?

Hi all,

Question for my dad as he's too old to use a computer. He is selling one of his IP's (about $1.2M) and looking at somewhere else to invest his money. He's not really after cashflow as he has enough to live day to day, but likes the idea of cashflow. Ie, building up his bank reserves (maybe it's just an old person thing where you visually need to see the money in bank). I'm more inclined for him to put his money into a growth ETF long term. I'd see this as being a 20 year outlook hopefully taking his age into consideration.

Maybe 35% VAS, 35% VGS and 30% VDHG? And perhaps the distributions from VAS and VGS stick into VDHG?

Thoughts?

 

If VDHG was around when i began I'd have just stuffed everything in that.
Nothing wrong with what you propose other than the element of duplication if a skew is what you are after.

Personally I'm more about 'good enough' with whatever requires the least effort these days.

I saw somewhere a betshares all equities version that looked slightly more appealing than even VDHG too.
Im anycase I'm not looking to change my existing plans so I haven't looked much more into VDHG or the betashares 'equivalent'.

 

Can you explain how it works in terms of CG. This is where I am getting confused? I keep reading that VDHG triggers CGT ??

 

Cant comment sorry as I havnt looked into it much nore than the portfolio construction and thinking it looked close enough to my own holdings I could have saved the effort and moments of self doubt about my own portfolio construction.

Admittedly the benefit individual holdings have is have being able to simply rebalance with future contributions.

 

There is another thread on this topic fyi

 

Thanks MTR, can you please provide the link?

 

VDHG, high growth ?!

 

VDHG is a great single fund option but does have some minor downsides.

VDHG or roll your own — Passive Investing Australia

Some of these downsides are overcome by the Betashares option DHHF

DHHF and other VDHG alternatives — Passive Investing Australia

 

If you want yeild and what should be a safer option, UMAX may be better than VGS pretty much the same companies but should be less volatile with less down side at the expense of a little less upside by using options. They both have better quality companies that could be still be out performing and be top companies in 20 years . VAS is composed of companies that have much lower growth prospects. For yield I would have HACK with a lower weighting. Wlth a yield of 10% you only need 20% of whats needed to get the same income as VGS shares . Umax gives a 6% yield so you need 3x more of VGS, but I would give that a higher weighting. VDHG looks like worsification to me, You want a heavy concentration of the best shares may be 20.. Not 2000 of second rate ones. A small alloocation of NDQ or even a much smaller one of the leveraged variety, or IVV. for growth that may contribute significantly to total returns .

 

Better option? Less volatile for a little less upside?
Don’t know about that. But a quick search online and I found this.
Last 1 year umax underperformed VGS by 3.15%. Last 3 years underperformed by 5.7% p.a and over 5 years under by 5% p.a.

Looking at those numbers I would say you are giving up a heap of return for the false perception of safety that UMAX and other high yielding funds offer.

 

Ah yes UMAX, let’s take our return by specifically targeting high income without franking let alone discounted capital gains. Wonderful product.

 

Two high yield ETFs worthy of consideration are VHY and SYI. Both compare favourably to VAS over the past year on a total return basis.
YMAX has a very high yield but it is at the expense of capital growth (which can be uncertain).

 

And pay a 0.79% MER for the privilege. Aside from perhaps A200 and DHHF, BetaShares really has some terrible products.

 

It wasn't that long ago that DHHF looked significantly different also, recent changes for the better have made it popular

 

I like DHHF and have my daughters investing in it as a simple all in one ETF. BetaShares still make me nervous long term that they will either change it, close it or increase fees.

 

I also like the equity diversification for DHHF, its the closest us deprived Aussies get with a local domicile to the whole haystack (plus a bit of home bias) in one fund. But yes hope BetaShares don't screw it up. The freedom they had within the fund rules to make this a better fund is also freedom to stuff it up down the track.

@Hockey Monkey, have you run the tax drag numbers for the SPDW and SPEM etf's they currently use.

I guess the risk with them using external fund manager ETF's is that one day they switch to another provider or try and bring those components back in house and cause a IWLD type capital gain event.

 

Yes I have, works out within 1 basis point of VDHG, but better tax efficiency due to underlying ETFs rather than wholesale funds and no bonds.

https://www.reddit.com/r/AusFinance/comments/jnu9rl/comment/gb4398m/

Exactly, hopefully it grows to enough AUM that they wouldn’t do something like this. They already converted DZZF, DGGF and DBBF to ESG so hopefully removes that as a risk.

 

The entire market for UMAX and YMAX are people that don't understand what the product is.

Why is that?

It increases the yield by capping the upside but your downside is uncapped.

Let's put that into numbers so you can understand how

If the market returns 50%, you miss out on all of the upside beyond a set percent. That is where you additional steady cashflow comes from. So far, not so bad. I could live without huge ups for a more steady return.

However, in marketing, BetaShares says it reduces volatility but without explaining the asymmetry, it allows potential clients to assume it is the mirror reverse in a loss period where your losses are similarly capped. This is not how it works. Your losses are uncapped, so if the market falls 50%, your investment falls 50% (less the additional couple of percent of yield.

Who on earth would knowingly choose to lower upside volatility while not lowering downside volatility? It is exactly the opposite of what anyone would want.

For this utterly absurd product, they charge you 0.79% in fees.

As I said, the entire market for UMAX and YMAX are people that don't understand the product. This is also why many people don't trust BetaShares. It is clear as day that they are more than happy to take advantage of people for their own profit.

 

Thats terrible. Thank-you for pointing it out.

From the UMAX fact sheet

UMAX's strategy is expected to outperform a strategy of holding the Share Portfolio alone (i.e. without writing index call options) in falling, flat and gradually rising markets. However UMAX's strategy can be expected to underperform in a strongly rising market, as UMAX does not participate in any rise in the Index above the strike prices of the index call options - moderating the potential capital growth of UMAX.

Reminds me of some terrible opaque structured products Citibank pitched to me at some point.

 

For retirees fully franked dividend income is hard to beat.

In terms of high yield ETFs there is nothing better out there than VHY in terms of stability and return in my view. Beware of many others they are a yield trap. VanEck has a recent one but it’s not yet doing as well as VHY.

however I’m not sure if you have considered LICs like Argo and AUI. I think for retirees they can offer more stable and predictable income flow than with funds like ETFs, and the benefit of fully franked dividends.