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Highlights:
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The Vanguard Australian Shares High Yield ETF (ASX:VHY) experienced a decline of approximately 5.7% since mid-February 2025.
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This ETF primarily comprises high-dividend-yielding companies, notably in the banking and mining sectors.
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Recent U.S. tariffs have raised concerns about global economic growth and inflation, impacting sectors integral to VHY's holdings.
Overview of the Vanguard Australian Shares High Yield ETF (VHY)
The Vanguard Australian Shares High Yield ETF (ASX:VHY) is designed to provide investors with exposure to Australian companies that offer higher forecast dividends relative to other ASX-listed entities. As of February 2025, the ETF managed assets totaling approximately AUD 4.4 billion. The ETF's portfolio encompasses 67 businesses, with significant allocations to sectors such as banking and mining. Notable holdings include BHP Group Ltd (ASX:BHP), Commonwealth Bank of Australia (ASX:CBA), Westpac Banking Corp (ASX:WBC), National Australia Bank Ltd (ASX:NAB), Telstra Group Ltd (ASX:TLS), Woodside Energy Group Ltd (ASX:WDS), Rio Tinto Ltd (ASX:RIO), and ANZ Group Holdings Ltd (ASX:ANZ).
Recent Performance and Contributing Factors
Between mid-February and March 2025, VHY's unit price declined by approximately 5.7%. This downturn aligns with broader market movements, where the ASX 200 index, for instance, experienced a 2% decrease over a week, marking its fourth consecutive week of decline.
Impact of U.S. Tariffs on Key Sectors
The recent implementation of U.S. tariffs has introduced uncertainties that have reverberated across global markets:
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Mining Sector: The U.S. administration's tariffs on steel imports are anticipated to suppress global demand for steel, potentially reducing the need for raw materials like iron ore and metallurgical coal. Given that China is a major consumer of these commodities, any slowdown in its steel production could adversely affect Australian mining companies such as BHP Group and Rio Tinto, both of which are significant constituents of the VHY ETF.
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Banking Sector: While banks might not be directly affected by tariffs, the broader economic implications, including potential inflationary pressures and slowed economic growth, could influence their operations. Leaders from major Australian banks have expressed concerns that such trade tensions could lead to increased global inflation and market volatility.
Dividend Yield Considerations
A decline in the ETF's unit price can lead to an enhanced dividend yield for new investors. As of February 2025, VHY's forecast grossed-up dividend yield, inclusive of franking credits, stood at 6.4%. This elevated yield reflects the ETF's focus on high-dividend-paying companies.
Diversification and Sector Exposure
It's noteworthy that over 60% of VHY's assets are concentrated in the banking and mining sectors. This concentration implies that the ETF's performance is closely tied to the dynamics of these industries. For those seeking broader diversification, it might be beneficial to explore additional sectors, such as real estate investment trusts (REITs), to mitigate sector-specific risks.
