• Australian (ASX) Stock Market Forum

Income producing ETF question/thoughts/input request

Discussion in 'Beginner's Lounge' started by success, Jul 20, 2015.

  1. success

    success New Member

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  2. So_Cynical

    So_Cynical The Contrarian Averager

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    First up 4 letters in the code means it's not a proper ETF - BetaShares Australian Dividend Harvester Fund (managed fund) (HVST)

    Must be one of those new managed funds that can be purchased through a broker.
     
  3. sinner

    sinner Well-Known Member

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    My 2c is that the management expense is quite high at 0.65%.

    SSGA, Russell and Vanguard have high yield ETFs (SYI , RDV and VHY) with fees at 0.35%, 0.34%, and 0.25% respectively. Worth at least checking them out. I don't think the monthly payout is justifies the extra fee, so they must have a really magical methodology.

    Make sure you understand that dividends are a privilege, not a right for investors and they don't really represent income per se (you will notice that the value of a stock will generally decline by the dividend amount paid on the ex-dividend date) but rather the transfer of cash from the business back to shareholders.

    Over the long term you can expect high dividend stocks to generally provide a total return equal to (not greater than) the market return despite its lower dividend yield. This is mostly because dividend yield is not a full representation of the cash returned to shareholders, thereby giving an incomplete picture of the relative yields of the asset universe.

    https://en.wikipedia.org/wiki/Shareholder_yield

    The total "yield" consists not just of dividends, but also share buybacks and paydowns on long term debt. All 3 are pretty much functionally equivalent to shareholder returns, but for some reason, some people prefer the dividend over the other two.

    Don't forget to pay attention to franking credits.
     
  4. thembi

    thembi Active Member

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    Hi there,
    HVST is essentially an ETF - the only reason why it can't be called an ETF is because its not an index tracker - trades no differently to any other of the Funds and ETFs traded on ASX.

    The strategy itself is a dividend rotation strategy - often used by stockbrokers and investors but hard to do yourself given the portfolio sizes needed. It's paid a pretty consistent 1% per month distribution to date.

    No magic in the strategy but has a risk management overlay and provides higher than normal franking credits which is particularly good if you're buying in a SMSF or have an otherwise lower tax rate.
     
  5. christianrenel

    christianrenel Active Member

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    RDV - Russell High Dividend Australian Share fund, produces a reasonble return from dividends. But majority of the underlying holding is in the 4 big banks.

    Kind Regards

    Christian Renel
     
  6. scub

    scub Member

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    Sorry for lateness of question:
    By dividend rotation strategy do you mean that they take the dividend from one stock, sell that company and buy another to reap that dividend as well then after the dividend season adjust fund back to index levels ?

    Sounds reasonable and with no real significant capital risk as long as capital used stays in the same sector . Or am I missing something ?
     
  7. li21

    li21 Member

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    Any input as to whether this HVST strategy is a good long term bet and sustainable ?
    I woudln't mind picking up this in my SMSF (and sell my VHY) but I don't want to see the share price halved as a result of the strategy in 10 years time
     
  8. So_Cynical

    So_Cynical The Contrarian Averager

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    Had a proper look for the first time, the share price has come down 20% top to bottom since float, monthly div payments average 65% franking or so, 11.5% pa, certainly worth looking into more, i imagine the reduction is SP has to do with the top 20 down turn, maybe they are losing on the trades and just passing on the dividends.
     
  9. li21

    li21 Member

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    Thats a worry long term though as won't they just be eating in to capital?
     
  10. thembi

    thembi Active Member

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    They recently did a blog on this fund which I think sets out how it all works pretty well http://www.betasharesblog.com.au/reap-what-you-sow-hvst/

    The extra franking they are generating is very helpful if you are in a low tax paying environment or SMSF. Without DRP capital value will absolutely decline given the very high levels of income being generated, so its all about total return in the end
     
  11. mjim

    mjim Well-Known Member

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    The blog says "..one would expect the Fund to underperform from a price return perspective by broadly the degree to which it outperforms from a gross income perspective. "

    So does that means the fund will loose same amount of money that it gains in Divs!
    So what is the point?
     
  12. li21

    li21 Member

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    Thats what I'd like to know.
    Trying to figure out whether I swap out VHY for HVST ...
     
  13. thembi

    thembi Active Member

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    A few points on this - firstly, there is a known effect whereby share prices typically do not drop by as much as the dividend (known as the run up effect) which means that there may be some extra gains possible from here. Most importantly however, this fund is for people who actually want high income or dividends monthly, as well as can benefit from franking credits. If you are a growth oriented investor who is not wanting high income monthly then this fund may not be for you. As the name suggests, its a dividend harvester fund. Franking credits for the right investors are essentially 'free money' so an investment which doubles the amount of franking in the market can be very beneficial.

    At the end of day, its all about your particular investment needs and circumstances
     
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