Vanguard Australian Shares High Yield ETF (ASX: VHY) $83.43

We believe the budget positioned stocks paying a decent, sustainable yield, ideally fully franked, favourably against property moving forward. Changing Australians’ mindset around property investment may take time, but the changes to negative gearing and CGT should have a meaningful impact when people start crunching the numbers.

• The issue for ASX-traded ETFs that are constructed around yield, especially fully-franked, are they’re bank-focused for obvious reasons – one sector that the budget has created a headwind for.

The Vanguard Australian Shares High Yield ETF provides simple, low-cost exposure to some of Australia’s strongest dividend-paying companies. The fund holds ~88 local stocks across sectors, including banks, miners and energy, focusing on companies expected to deliver above-average income. Importantly, in the context of todays report, the ETF holds a ~34% weighting towards the banks, which isn’t too concentrated considering many investors’ perception of where to obtain yield.

• The VHY ETF has yielded ~5.5%, mostly franked over the last 12-months, with distributions paid quarterly, plus it’s advanced more than +8% year-to-date.

The VHY ticks a lot of boxes, and although it does have concentration limitations, rebalancing could improve the composition toward the banks if they do underperform for a prolonged period. The pullback in the sector has caused the ETF to retrace ~3%, with its outperformance of the ASX demonstrating, in our opinion, that it’s currently in a sweet spot for Australian investors.

• We like the VHY for yield and potential market outperformance in the coming months/year, with its next dividend due in July.