VYMI: Strong buy on dips with a 4.8% yield

Vanguard International High Yield Equity ETF (Nasdaq:FIME) invests primarily in large-cap foreign stocks that offer high-yielding dividends. Since many European stocks offer higher returns than their US counterparts, this fund has strong European exposure And an impressive return of about 4.8%. There’s a lot to like About this fund Including the fact that it has a low expense ratio of 0.22%, it has delivered solid returns of just over 8.5% annually since its inception in 2016. Let’s take a closer look:

Chart

As the chart below shows, this fund has been in a strong uptrend since November 2023, and is now trading near its all-time highs. There has been a slight pullback recently, and I will wait for further pullbacks to use them as buying opportunities. The 50-day moving average is $69.29 and the 200-day moving average is $69.29. The average is $64.84. For new money to be invested here, I would buy on pullbacks to any of these moving averages, especially more aggressively at the lower 200 day moving average.

Top Ten Holdings

This fund’s top 10 holdings reveal a number of well-known stocks. Here is a list of some of the collectibles:

What I like about this fund is that there are no oversized positions that create excess risk; This is because no position is equivalent to more than 2%. This broad diversification gives investors peace of mind and allows the fund to invest in many companies and in many industries. This fund invests in pharmaceuticals, financials, automakers, consumer goods, energy, industrials, and more. Here’s a more detailed look at some of my favorite stocks in the VYMI portfolio:

Nestlé (OTCPK:NSRGY) is one of the largest food companies in the world. It has a wide range of many popular brands, including Bettoni (pasta), Coffee Mate, Carnation, DiGourneau, Contrex, Fancy Feast, Gerber, Kit Kat, Nescafe, Perrier, Purina and many more. Food price inflation and the rising popularity of weight-loss drugs have caused some concerns for investors in this stock, but over the long term, it’s very hard to go wrong with an investment in a high-quality food producer, especially as the global population grows and as consumers grow in the Third World. Countries around the world are joining the middle class. This stock represents just over 2% of the portfolio’s holdings.

TotalEnergies (TTE) is one of my favorite oil stocks because it offers a high-yielding dividend, and it trades at a significant discount to its U.S. peers, which include Exxon (XOM) and Chevron (CVX). TotalEnergies trades at about 8 times earnings, offering a yield of about 4.6%. AI data centers are expected to consume huge amounts of energy in the coming years, especially solar energy, which is also beneficial for this company since it has a large solar division. This stock represents just over 1% of the portfolio’s holdings.

Toyota Motor (TM) is one of the largest and most recognized automobile companies in the world. It also owns the Lexus brand and has a wide range of hybrid vehicles, which has been popular with consumers who don’t want to worry about range. This company has allegedly not provided accurate safety information on some of the cars it manufactures, which has led to low inventory recently, but I think this may be a buying opportunity. This stock represents just over 2% of the portfolio’s holdings.

Shifts in policy by the European Central Bank and the US Federal Reserve could create an upside

The European Central Bank, or ECB, recently cut interest rates for the first time since 2019, and more rate cuts could follow in the coming months. The US Federal Reserve is expected to follow this approach and cut interest rates perhaps later this year or next year. If interest rates decline globally in the next couple of years, this could make high-yielding stocks more attractive to investors. The amount of cash deposited in money market funds has recently reached record levels of more than $6 trillion. When interest rates are lowered, the prices of money market funds will fall, which could send many investors into high-yielding dividend stocks, and push prices higher for stocks like the ones VYMI has in its portfolio.

Profits

This fund pays a quarterly dividend of approximately $0.8644 per share. This provides a yield of about 4.80%. This yield is considered very attractive because it is close to what money market funds pay now, with yields of just over 5%. However, the big difference is that when you buy into this fund, you can essentially lock in that return over the long term and potentially gain an attractive upside from capital gains. By contrast, investors who parked their money in money market funds could see a sharp drop in returns after the Fed lowers interest rates.

Potential downside risks

Of course, this fund has potential downside risks that come with investing in the stock market, and I think that is the main risk. However, this fund is very well diversified, and does not have any positions much larger than 2% of total portfolio holdings. This gives investors diversification and reduces the downside that comes with investing in individual stocks or in ETFs that have large-sized positions. I think the other potential risk is actually the opportunity cost. This fund won’t rise as much as AI stocks, and it hasn’t performed as well as many technology ETFs or growth stocks, so while the roughly 8.5% annualized returns it has provided are very strong, overall it may miss out on larger returns.

In summary

I see VYMI as an ideal ETF to add to my portfolio, as it has delivered strong total returns of around 8.5% since inception and with a return of around 4.8%, it delivers roughly the same return as most money market funds. However, money market returns are likely to decline over the next couple of years, and this fund could benefit from lower returns, as this will make high-yielding stocks more attractive to investors. I believe this will lead to capital gains, which, combined with dividend yields, could lead to above-average total returns in the coming years. I plan to add more shares of this ETF at any dips, and hold it for the long term.

No warranties or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

Editor’s Note: This article discusses one or more securities that are not traded on a major U.S. exchange. Please be aware of the risks associated with these stocks.