Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY) Review
After covering some popular exchange-traded funds (ETFs) offered by BMO Global Asset Management, now we are taking a look at another giant fund manager in Canada, Vanguard Investments Canada Inc. or simply, Vanguard. The US branch of Vanguard boasts about 80 ETFs and the Canadian arm manages about 43 ETFs. In this article, we will focus on Vanguard FTSE Canadian High Dividend Yield Index ETF; ticker symbol VDY, listed in the Toronto Stock Exchange (TSX).
Vanguard came into Canada in 2011 and has been a leader in keeping investment costs lower than its peers. Since then, it has also grown to be one of the key players in the investment front in Canada with a sizable collection of ETFs and mutual funds. Vanguard Group is one of the largest investment firms in the world with over $9.1 trillion assets under management and over 30 million clients worldwide.
The Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY) is one of Vanguard’s most popular ETFs with over $1 billion invested so far. The fund attempts to replicate the FTSE Canadian High Dividend Yield Index which contains some of the biggest dividend payers in Canada.
Due to its high dividend yield of around 4.57% and monthly dividend payouts, VDY remains one of the fan-favorite ETFs for income-focused investors.
| Quick Facts | VDY.TO |
|---|---|
| Fund inception date | November 02, 2012 |
| Net Assets (Sept 30, 2021) | $1.2 billion |
| Exchange | Toronto Stock Exchange |
| Annualized distributions yield | 4.57% |
| Distribution frequency | Monthly |
| Management expense ratio | 0.21% |
| Account eligibility | TSFA/RRSP/RESP/RRIF/DPSP |
Vanguard uses a bunch of numbers to give an indication of the fund’s risk. We will try to explain these numbers in layman’s terms. The fund has an r-squared and Beta of 1 each, which says that the fund has been very successful in tracking its underlying index. The alpha number shows the actual deviation of the fund’s expected return. The -0.2 alpha can be explained by the 0.21% management expense ratio which is deducted from the fund’s returns. The 17.8% standard deviation tells us that the volatility of the fund has been managed relatively well. The higher the standard deviation, the higher the volatility and subsequently a higher risk. With all these numbers, we will label this a Medium-risk investment due to the fact that the fund focuses solely on the Canadian market and also solely on dividend stocks.
Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY) Holdings
As of this article, VDY holds 39 companies and these are some of the biggest and best yielding companies in the Canadian stock market. Below is a list of the top 20 holdings with their weights as of September 30, 2021.
| Holding Name | Weightage |
|---|---|
| Royal Bank of Canada | 14.1% |
| Toronto-Dominion Bank | 12.0% |
| Enbridge Inc. | 8.04% |
| Bank of Nova Scotia | 7.44% |
| Bank of Montreal | 6.44% |
| Canadian Imperial Bank of Commerce | 4.86% |
| TC Energy Corp. | 4.70% |
| BCE Inc. | 4.52% |
| Canadian Natural Resources Ltd. | 4.23% |
| Manulife Financial Corp. | 3.73% |
| Nutrien Ltd. | 3.69% |
| Suncor Energy Inc. | 3.07% |
| Sun Life Financial Inc. | 3.00% |
| TELUS Corp. | 2.97% |
| National Bank of Canada | 2.57% |
| Fortis Inc./Canada | 2.07% |
| Power Corp. of Canada | 1.78% |
| Pembina Pipeline Corp. | 1.73% |
| Shaw Communications Inc. Class B | 1.24% |
| Emera Inc. | 1.15% |
Any income investor in Canada would be able to recognize these companies as some of the most stable and better yielding investments.
An investment into the VDY ETF gives the investors diversification among the financial sector (58%), the energy sector (22%), the telecommunications sector (8.8%), the utility sector (6%), the basic materials sector (3.9%), and more.
One major drawback of this fund is that 100% of its assets are allocated among Canadian companies. This risk can be mitigated by combining this ETF with another that focuses on the US or other international markets.
Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY) Performance
VDY ETF is closing on its 9th year anniversary and this is a decent timeframe to analyze its performance. From 2012 to 2021, the fund has given a total return of 124.33%. In actual dollar amounts, a $10,000 investment in 2012 would have turned into $22,222 by September 2021. This is a pretty stellar performance for a short span of time.
We don’t have the performance graph for VDY’s underlying index, the FTSE Canadian High Dividend Yield Index to show the comparison. However, earlier we learned that the r-squared of VDY is 1, which signals a strong replication of the underlying fund’s performance in VDY (almost to say that the performance has been 1:1). This is excellent news.
Is VDY ETF for You?
If you are an investor looking into the Canadian market for sustained monthly incomes, VDY can be a winner for you. A high diversification within the Canadian market will give you exposure to many sectors and some of the biggest companies in Canada. This reduces the potential for downside, especially considering that around 60% of the fund’s assets are allocated in the financial sector, which is one of the most bulletproof industries out there.
Check out the latest information about the fund on Vanguard.
Disclosure: Any information given in this article is not to be construed as investment advice. You must do your own research before investing any money in the stock market. All investments carry inherent risks even with the possibility of losing all your money.
