Vanguard FTSE 100 [VUKE]
Time to play 'Footsie'
The FTSE 100 index tracker from asset manager Vanguard is one of the largest, and cheapest ETFs available to track the largest UK listed equities.
The FTSE 100 is an index comprised of (approx.) 100 of the largest UK listed companies by market capitalisation.
The index is reviewed on a regular basis to either remove companies which are delisted (e.g. by takeover) or whose market capitalisation has fallen below a certain level. A ‘promotion’ from the second tier of listed UK companies, the FTSE 250, replaces any companies which are ‘relegated’ from the FTSE 100.
The Fund employs a passive management – or indexing – investment approach, through physical acquisition of securities, and seeks to track the performance of the FTSE 100 Index (the “Index”).
Because the index is ‘market-cap weighted’, not every company in the index has an equal share. This means the largest firms will comprise a greater share of the index than if each company were weighted equally, and has performance implications should those large companies do well or poorly compared to their smaller counterparts.
The Vanguard FTSE 100 index tracker (‘VUKE’ from here) replicates the index on a ‘physical’ basis, which means it purchases a share in each component of the index. This means it is entitled to any dividends received from any shares owned from the Index which distribute them.
ETFs have two options with income such as dividends: They can either add them to the net assets of the ETF which will increase the value of each individual ETF share (known as ‘accumulation’) or it can aggregate the dividends together and distribute them to holders of the ETFs on a periodic basis (e.g. quarterly).
VUKE is a ‘Distribution’ ETF, and assuming it has received dividends from its holdings, it will pay a quarterly dividend to holders of the ETF at a specified date, usually in March, June, September & December.
(There is also a Vanguard alternative which is an ‘Accumulation’ ETF and adds dividends to the value of the fund, rather than distributing them).
The dividend yield (i.e. what you receive in dividends as a % of the price of each VUKE share) will vary throughout the year, depending on the dividend payment schedule of the companies which make up the index, but a trailing yield can be calculated by looking at the prior four quarters of dividend payments and dividing by the current price. Running this back over the past four years gives the following graph of:
Price Per VUKE Share (£) - Left hand scale
Dividend Yield at time of payment (%) - Right hand scale
As you can see from the knocked-up-in-two-minutes Excel graph, over the past four years the price has generally fluctuated between £25-£33 per share, with the lowest being during this year’s Covid Crash in March when the price hit £23.05 and the highest being back in those heady days of May 2018 at £34.76 per share.
Dividend yield has generally been anchored to the 4% level, which is generally higher than most ETFs of major equity indices, but of course will fluctuate depending on the performance and distributions of the companies which comprise the index.
Part of the reason for this relatively high yield is the strong make up of the index by large dividend payers such as Financial Companies (Banks, Insurers), Commodity Traders (Oil, Mining) and those in the Consumer Staples sector.
You can see the breakdown from Vanguard’s website:
(As of December 2020, graph courtesy of Vanguard)
It’s notable that Technology & Telecommunications companies account for such a small share of the index - especially compared to the S&P 500 Index in the USA (Information Technology c. 28%, Communication Services c.11% as of Aug 2020). This may account for the relative underperformance of the FTSE100, especially compared to the main US stock market indices as the world shifts from an offline to an online world, and the sectorial make up of the FTSE100 is therefore worth considering when weighing up whether to allocate cash into leading UK equities.
Additional Details
With a (current) TER (Total Expense Ratio) of just 0.09%, this ETF is amongst one of the cheapest available, and means the ETF will track the performance of the underlying index very closely and means less of your hard earned cash will be siphoned away into the hands of the investment management company.
At the time of writing, the fund size (total assets) was just over £3.1bn, making it the second largest FTSE 100 index focused ETF on the UK exchanges behind the giant iShares Core FTSE 100 ETF (£8.3bn) and well ahead of also-rans the HSBC FTSE 100 ETF and the Lyxor FTSE 100 ETF.
Generally larger funds are traded more often and therefore are more ‘liquid’, which helps keeps the difference between the buying and selling price (known as the ‘spread’) to a minimum, meaning more of your cash goes into buying the asset, rather than on the transaction.
It’s worth noting that at the time of writing, both the iShares Core and HSBC FTSE100 ETFs had a slightly cheaper fee ratio, at 0.07%.
And finally…
As ever, the above should not be construed as investment advice, and investors should conduct their own due diligence before purchasing.
In addition, whilst every attempt is made to ensure accurate and up to date information, fund information is liable to change and updates may not be reflected in existing articles.
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