Tuesday, 1 July 2014

More ETFs (Portfolio Buys)

Source
With an average yield of (now) 6%, the DIY Income Investor portfolio is throwing off cash at a satisfying rate. Add to this the sale of both profitable and unprofitable investments and the portfolio hit a substantial cash glut over the last few weeks.

I don't like holding cash in an investment account, as it just sits there, lazing around figuratively watching the Footie or Wimbledon, rather than earning its keep, like it's supposed to. Personally, I can't wait until I can access Ratesetter's peer-to-peer lending rates from inside an ISA (now the New ISA or NISA) or SIPP.

Until then I need to keep looking for better uses for the cash - and the long-term strategy says 'buy ETFs when the yields are attractive'.

As always, I like to keep a balance between high-yield dividend shares and high-yield bonds (or other fixed-income). The latest purchases are ETFs focused on each of these areas - one new and one old:
  • the new ETF is the iShares Global High Yield Corp Bond UCITS ETF (LSE:HYLD) which tracks the performance of the Markit iBoxx USD Liquid High Yield Capped Index. It has a trailing yield of 5% - not particularly juicy for this portfolio but I like the 'global' nature of the diversification plus the fact that it is denominated in USD; plus it is fixed-income, which is currently under-represented. The expense ratio is 0.50% - par for the course.
  • the old ETF (in the sense that it is an addition to an existing holding) is the Vanguard FTSE All-World High Dividend Yield UCITS ETF (LSE:VYHL), which was only launched around a year ago and is now getting into its stride, in terms of its reported yield - which is reported by Vanguard as 3.7% (although Bloomberg reports a questionable 5.47%) with an expense ratio of only 0.29%. Achieving this kind of worldwide diversification at such a low cost is quite a feat; I reckon this is a 'must have' investment for any DIY Income Investor. I am piling in.

So there you have it - two new investments in ETFs, maintaining a balance in the portfolio between income from dividends and the less-volatile fixed-income securities. ETFs won't make your fortune - but I reckon they are a very useful type of investment (when used as part of a rational strategy) for managing whatever wealth you have been able to accumulate.

[Purchase prices: HYLD £64.39; VHYL £33.36]

[Update 2/7/14 - It looks like the VHYL yield reported by Bloomberg is probably an error, although this has not yet been corrected. Given the global diversification benefit of this ETF I am still willing to accept the lower yield reported by Vanguard]

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

5 comments:

  1. Where did you get the 5.7% yield figure for VHYL? The Vanguard factsheet mentions 3.7%

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  2. Hi DIY,
    I commented on the previous article ref VHYL. I checked the yield and the 5.47% was to good to be true. The last four distributions totalled $1.94, current price is $55. This gives a yield of 3.5%. Am I missing some data ?

    I got dividend data from link below.

    I would not expect this ETF to generate anything like 5.47% as 30% of this ETF is in USA stocks and the S & P 500 yield << 2%. As I mentioned before you need to dig deeper into ETF yields.

    But if it really is 5.47%, I'm piling in big time !
    Best Regards.

    https://www.vanguard.co.uk/adviser/adv/investments/etfs/detaildistribution?portId=9506&assetCode=EQUITY

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  3. Hi DIY,
    Checked VHYL. Price is $55, last four distributions totalled $1.94, therefore yield is 3.5%. See link below. 30% of this ETF is in USA, i would not expect a 5.47% yield from this ETF. Best Regards.
    https://www.vanguard.co.uk/adviser/adv/investments/etfs/detaildistribution?portId=9506&assetCode=EQUITY


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    Replies
    1. Thanks for checking - you may well be right. I got the figure from Bloomberg, who are usually reliable - but possibly not in this case!
      http://www.bloomberg.com/quote/VHYL:LN

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  4. A bit off topic but one to watch might be Safestyle (SFE). Good prospects. Divi at 4.5% a bit light for you but could get to 5% on a dip. Thanks for the site. Pete (The guy who highlighted Infinis)

    ReplyDelete