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Is BetaShares Australian Dividend Harvester Fund (HVST) a good investment?

Is BetaShares Australian Dividend Harvester Fund (ASX: HVST) a good investment?

What is BetaShares Australian Dividend Harvester Fund?

The fund aims to generate a franked income stream of at least 1.5x the yield of the broad Australian share market on an annual basis, paid monthly.

What that means is that it invests in ASX shares that are mostly expected to pay a high dividend yield to investors. Some of its largest holdings include Westpac (ASX: WBC), Macquarie (ASX: MQG), NAB (ASX: NAB), ANZ (ASX: ANZ), CBA (ASX: CBA) and BHP (ASX: BHP).

It also tries to employ a risk management strategy by selling ASX SPI 200 futures to reduce the effects of volatility.

Looking at the yield, the fund generated a 12-month distribution yield of 12%, which was 16.8% when grossed up for franking credits.

Is it a good investment?

BetaShares Australian Dividend Harvester Fund clearly has a high focus on income potential for investors. But perhaps it’s actually too much of a focus. Whilst the dividend return is high, the overall return has been poor.

According to BetaShares, the net return of the fund over the past five years to 30 April 2020 was -1.68% per annum. That includes a large amount of income. So the capital value for investors has been declining.

It’s not designed to generate much capital growth, but I don’t think that investors need to focus that heavily on income. With the capital value declining the actual distribution from the fund has been falling too.

So the initial distribution seems high, but each year it’s getting smaller and smaller.

I think you may as well go for a listed investment company (LIC) which pays a big dividend but it’s consistent and there’s potential for capital growth too. One example could be WAM Leaders (ASX: WLE) – it also invests in ASX blue chips but it as grown its dividend each year over the past few years. WAM Leaders has a yield of 8.6% including the franking credits. Or something like BetaShares S&P 500 Yield Maximiser Fund (ASX: UMAX) could work.

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