How the VHY and GEAR ETFs fit in a portfolio
The Vanguard VHY ETF provides exposure to the largest dividend-paying Australian shares, based on market capitalisation and forecast dividend yield. It tracks the FTSE Australian High Dividend Yield Index. The index excludes real estate investment trusts (REITs) and caps the total exposure to any sector/industry at 40%.
BetaShares GEAR Fund is an internally geared fund, investing in the largest 200 companies on the ASX, by market capitalisation.
See our ASX GEAR report – it’s totally free.
Okay, so we know what they’re designed to do, the sectors and strategies. Now what? One of the quick ways to compare ETFs like GEAR and VHY is to study the fee load. No one likes paying high fees if they don’t need to. Here at Best ETFs and Rask Australia, we begin by analysing the fees and ‘all in’ costs of an ETF or fund. Our team will score ETFs based on management fees, plus any other costs, then put them into quartiles by sector, strategy and across the entire ETF market.
To make this article easier to digest, we’ll just study the fees or ‘management expense ratio’ (MER). Using data for December 2021, the VHY ETF has an MER of 0.25% while the GEAR ETF had a yearly fee of 0.80%. As a result, VHY comes out on top. Keep in mind, a more useful metric to know is the fee quartiles that these ETFs find themselves in (note: quartile 1 is best). Meaning, we take all the Australian shares ETFs in our database and classify them into 4 quartiles, based on their fees. For example, any ETF which has a fee below 0.3% would be considered in our first (best) quartile.
How we study past performance
Typically, we want to a see ETFs with a three-year track record of attractive performance. Put another way, when an ETF achieves a three year track record, we score it in a better position than might otherwise be the case. That said, there are exceptions to this rule of thumb. Also, remember that it’s hard to compare an ETF with a hedge fund strategy against other ETFs. Why? Hedge fund ETFs often use inverse or ‘opposite’ strategies which means that they’re designed to move in an opposite direction to the market. Nevertheless, we can see that both ETFs met their three-year performance milestone.
One final point: the ETF provider is important. In Australia, we believe there are a handful of stand-out ETF providers and many that are mid-pack or very fresh. As you guessed, the provider backing the VHY ETF is Vanguard. And Vanguard ranks highly for our scores of ETF providers and issuers in Australia. We consider Vanguard to be in Australia’s top three ETF providers for retail investors, advisers and institutions. GEAR’s ETF provider on the ASX is BetaShares. Betashares ranks highly for our scores of ETF providers and issuers in Australia. We believe BetaShares is one of the leading providers of index and non-index style products to retail investors in Australia.
What it all means
If you’d like to learn more about these two ETFs, be sure to visit our free VHY ETF report or GEAR ETF review.
In summary, the VHY ETF rates higher for our internal scoring methodology but not by much compared to GEAR.
Please, keep in mind, there is much more to choosing a good ETF. That’s why you should now use these skills to find the best ETF you can. If you want the name of our team’s top ETF pick for 2022, keep reading…