Vanguard Giving Less in Dividends than Competitors?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
metsfan14
Posts: 1
Joined: Sun Oct 15, 2017 9:13 pm

Vanguard Giving Less in Dividends than Competitors?

Post by metsfan14 » Mon Oct 16, 2017 6:43 pm

I recently started my first full-time job after college and enrolled in the company 401k. The plan is distributed by UBS. There are a couple different plan options but the one I chose has UBS automatically invest the money for me based on my risk tolerance. I can also have them change my allocation or include additional funds. The fee for this plan is 0.5%. I’m relatively happy with the plan overall. It is all broad-based ETFs encompassing equity growth and value, bonds, and REITs.

However, since the plan has a 0.5% fee I wanted to make sure my expenses within the funds were minimized. So, when I met with the UBS guy last week to go over the portfolio I asked him why he chose the specific funds that he did. Basically, what I was asking was why weren’t all of the ETFs from Vanguard since they have the lowest expense ratios in the industry. His answer was that while Vanguard claims to have the lowest ERs, they actually give less in dividends than some of the other funds. He used the hypothetical example that Vanguard charges an ER of 0.05% and gives dividends of 0.5% while a similar fund will charge a slightly higher ER of around 0.3% but distribute dividends of 1.5%.

I tried to verify this independently. Below is a summary of what I found. The first one in each category is the fund in the 401k and the second is the comparable Vanguard fund.

Large Growth
IWF: 12-Mo. Yield – 1.23%; ER – 0.2%
VUG: 12-Mo. Yield – 1.25%; ER – 0.06%

Mid Growth
IWP: 12-Mo. Yield – 0.98%; ER – 0.25%
VOT: 12-Mo. Yield – 0.82%; ER – 0.07%

Small Growth
IWO: 12-Mo. Yield – 0.83%; ER – 0.24%
VBK: 12-Mo. Yield – 0.91%; ER – 0.07%

Mid Value
DON: 12-Mo. Yield – 2.4%; ER – 0.38%
VOE: 12-Mo. Yield – 1.9%; ER – 0.07%

Small Value
DES: 12-Mo. Yield – 2.87%; ER – 0.38%
VBR: 12-Mo. Yield – 1.81%; ER – 0.07%

International
DWM: 12-Mo. Yield – 3.06%; ER – 0.48%
VEA: 12-Mo. Yield – 2.56%; ER – 0.07%

Emerging Markets
DEM: 12-Mo. Yield – 3.86%; ER – 0.63%
VWO: 12-Mo. Yield – 2.34%; ER – 0.14%

*Data is from Morningstar
**Not all funds in portfolio are listed

It seems like some of the funds in the portfolio do distribute more in dividends than the comparable Vanguard fund. However, others give an almost identical yield but the ER from Vanguard is less.

I acknowledge that they’re not perfectly comparable since some of the value funds are specifically dividend funds. Also, I’m not entirely sure if 12-Month Yield is the best metric to use when comparing dividend distributions between different funds. Has anyone ever come across this supposed “discrepancy” with Vanguard funds? Is there a better metric to use when comparing dividend distributions between funds? Is the guy I met with on to something or not?

All input is appreciated, thanks!

Edit: I guess I should have been clearer in my original post. My company’s 401k plan has 5 options. The first is a traditional brokerage option where you have to pay standard commissions according to whatever commission fee schedule UBS has. Trades are made by phone. There is no online trading. The second is a mutual fund only option where you have to choose from a list of preselected mutual funds. The third is a do-it-yourself option with online access. The fourth is the option I chose. And the fifth is an actively managed account. The problem is that options 2-4 have a fee of 0.5% and option 5 has a fee of 1.3%. For right now, paying 0.5% in fees is still cheaper than paying commissions per trade. And I’m certainly not going to have them actively manage my fund for 1.3%. Even if I were to do it all myself (which I very well might in the near future) I would still have to pay 0.5%
Last edited by metsfan14 on Mon Oct 16, 2017 9:48 pm, edited 1 time in total.

EddyB
Posts: 557
Joined: Fri May 24, 2013 3:43 pm

Re: Vanguard Giving Less in Dividends than Competitors?

Post by EddyB » Mon Oct 16, 2017 7:13 pm

Assuming these competitors track the same assets, did your adviser explain why he thinks higher dividends are better?

User avatar
alec
Posts: 2951
Joined: Fri Mar 02, 2007 2:15 pm

Re: Vanguard Giving Less in Dividends than Competitors?

Post by alec » Mon Oct 16, 2017 7:24 pm

EddyB wrote:
Mon Oct 16, 2017 7:13 pm
Assuming these competitors track the same assets, did your adviser explain why he thinks higher dividends are better?
They don't. Some of the ETF selected by the UBS advisor specifically focus on dividends, while the Vanguard ETFs don't.
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair

lack_ey
Posts: 6626
Joined: Wed Nov 19, 2014 11:55 pm

Re: Vanguard Giving Less in Dividends than Competitors?

Post by lack_ey » Mon Oct 16, 2017 7:37 pm

For what it's worth, you're both wrong in a sense: Vanguard does not have the lowest fees in a lot of categories. iShares (Blackrock), Charles Schwab, and SPDRs (State Street) undercut them slightly in a number of funds. In fact, some of the iShares ETFs listed are not the cheapest they have in those categories. iShares Core S&P U.S. Growth ETF (IUSG) has an ER of 0.05% in the (average) large growth category, for example.

The tickers starting with D come from WisdomTree's dividend-oriented line, so obviously the holdings are tilted towards higher dividend payers and as such the dividend yields can be higher.

If you do some apples-to-apples comparisons of (near-)equivalent holdings such as iShares Russell 1000 Growth ETF (IWF) to Vanguard Russell 1000 Growth ETF (VONG), you find the Vanguard fund does have a lower ER and a higher payout.

In a 401k it doesn't matter how much of your return comes from dividends as opposed to price appreciation. In the cases listed, Vanguard's holdings have lower underlying dividends that the lower ER does not make up for. But with a lower dividend payout, all else equal you expect the price to increase faster.

Wakefield1
Posts: 857
Joined: Mon Nov 14, 2016 10:10 pm

Re: Vanguard Giving Less in Dividends than Competitors?

Post by Wakefield1 » Mon Oct 16, 2017 7:39 pm

Dividends are simply passed through,amount depends on the stocks held in the ETF or Fund? (less expenses)
Perhaps short term gains from trading distributed as "dividends"? (Might not be so beloved around here,tax cost of trading)(if held in a taxable account)
Last edited by Wakefield1 on Mon Oct 16, 2017 9:02 pm, edited 1 time in total.

sport
Posts: 7398
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Vanguard Giving Less in Dividends than Competitors?

Post by sport » Mon Oct 16, 2017 7:57 pm

Success in retirement investing does not come from dividends. It comes from total return. This is especially true in a 401k account. It does not matter whether a gain of one dollar is due to a dividend or a capital gain. You can spend that dollar regardless of how you earn it. Accordingly, total return is the metric you should be paying attention to.

avalpert
Posts: 6313
Joined: Sat Mar 22, 2008 4:58 pm

Re: Vanguard Giving Less in Dividends than Competitors?

Post by avalpert » Mon Oct 16, 2017 8:34 pm

The UBS guy is a disingenuous snake at best and downright ignorant at worst - do not go to him for investment advice.

Funds have little discretion on whether to distribute dividends received or not. Comparing two funds dividend yield, other than for the purpose of determining tax cost impact, is irrelevant to comparing the performance of the two funds. If he weren't a disingenuous snake (or completely ignorant) he would be comparing the total returns of comparable funds being higher despite costs. He isn't, he is useless.

billfromct
Posts: 780
Joined: Tue Dec 03, 2013 9:05 am

Re: Vanguard Giving Less in Dividends than Competitors?

Post by billfromct » Mon Oct 16, 2017 8:49 pm

As sport has explained, compare the 1, 5 & 10 year total return to make the most meaningful comparison.

Of course, past performance is no guarantee of future returns.

bill

beehappy
Posts: 73
Joined: Wed Sep 13, 2017 3:52 pm

Re: Vanguard Giving Less in Dividends than Competitors?

Post by beehappy » Mon Oct 16, 2017 8:59 pm

metsfan14 wrote:
Mon Oct 16, 2017 6:43 pm
I recently started my first full-time job after college and enrolled in the company 401k. The plan is distributed by UBS. There are a couple different plan options but the one I chose has UBS automatically invest the money for me based on my risk tolerance. I can also have them change my allocation or include additional funds. The fee for this plan is 0.5%. I’m relatively happy with the plan overall. It is all broad-based ETFs encompassing equity growth and value, bonds, and REITs.

However, since the plan has a 0.5% fee I wanted to make sure my expenses within the funds were minimized. So, when I met with the UBS guy last week to go over the portfolio I asked him why he chose the specific funds that he did. Basically, what I was asking was why weren’t all of the ETFs from Vanguard since they have the lowest expense ratios in the industry. His answer was that while Vanguard claims to have the lowest ERs, they actually give less in dividends than some of the other funds. He used the hypothetical example that Vanguard charges an ER of 0.05% and gives dividends of 0.5% while a similar fund will charge a slightly higher ER of around 0.3% but distribute dividends of 1.5%.

I tried to verify this independently. Below is a summary of what I found. The first one in each category is the fund in the 401k and the second is the comparable Vanguard fund.

Large Growth
IWF: 12-Mo. Yield – 1.23%; ER – 0.2%
VUG: 12-Mo. Yield – 1.25%; ER – 0.06%

Mid Growth
IWP: 12-Mo. Yield – 0.98%; ER – 0.25%
VOT: 12-Mo. Yield – 0.82%; ER – 0.07%

Small Growth
IWO: 12-Mo. Yield – 0.83%; ER – 0.24%
VBK: 12-Mo. Yield – 0.91%; ER – 0.07%

Mid Value
DON: 12-Mo. Yield – 2.4%; ER – 0.38%
VOE: 12-Mo. Yield – 1.9%; ER – 0.07%

Small Value
DES: 12-Mo. Yield – 2.87%; ER – 0.38%
VBR: 12-Mo. Yield – 1.81%; ER – 0.07%

International
DWM: 12-Mo. Yield – 3.06%; ER – 0.48%
VEA: 12-Mo. Yield – 2.56%; ER – 0.07%

Emerging Markets
DEM: 12-Mo. Yield – 3.86%; ER – 0.63%
VWO: 12-Mo. Yield – 2.34%; ER – 0.14%

*Data is from Morningstar
**Not all funds in portfolio are listed

It seems like some of the funds in the portfolio do distribute more in dividends than the comparable Vanguard fund. However, others give an almost identical yield but the ER from Vanguard is less.

I acknowledge that they’re not perfectly comparable since some of the value funds are specifically dividend funds. Also, I’m not entirely sure if 12-Month Yield is the best metric to use when comparing dividend distributions between different funds. Has anyone ever come across this supposed “discrepancy” with Vanguard funds? Is there a better metric to use when comparing dividend distributions between funds? Is the guy I met with on to something or not?

All input is appreciated, thanks!
Why do you need to pay someone to invest your 401k for you when you can pick your own funds and save the fee? It's a 401k...why do you care about yield? You'd turn around an invest that yield right back into the fund. So why do you care? Are there mutual fund equivalents that you can simply set-and-forget for a year or so? Since you're just starting out, the most important thing is to max your contributions and keep expenses low. Paying someone to supposedly max dividends while siphoning off .5% of your assets annually is totally the wrong move. Run away from this dude!

pkcrafter
Posts: 13100
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Vanguard Giving Less in Dividends than Competitors?

Post by pkcrafter » Mon Oct 16, 2017 9:09 pm

metsfan, I think you would be better off not paying 0.5% to the advisor. You can list your available funds/ETFs here and we will help you choose the best options, and you should be able to do automatic contributions with out the advisor.
His answer was that while Vanguard claims to have the lowest ERs, they actually give less in dividends than some of the other funds. He used the hypothetical example that Vanguard charges an ER of 0.05% and gives dividends of 0.5% while a similar fund will charge a slightly higher ER of around 0.3% but distribute dividends of 1.5%.
Sounds like a schmooze job to me. First, it's total return that matters, not dividends. Secondly, the advisor is indicating that Vanguard "gives dividends." Mutual fund companies don't give dividends, they come from the companies the fund is invested in. Value funds generally offer higher dividends than growth funds, and as Lack_ey has already indicated, the value funds are targeting companies that provide dividends, but so what?

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

User avatar
TomatoTomahto
Posts: 7651
Joined: Mon Apr 11, 2011 1:48 pm

Re: Vanguard Giving Less in Dividends than Competitors?

Post by TomatoTomahto » Mon Oct 16, 2017 9:12 pm

There are plain liars, fancy liars, and damned liars. I think you might have a fancy one there at UBS. Did he do a lot of hand waving?

Welcome to the forum. You have good instincts; trust them and not the UBS guy (nothing against UBS per se, but a salesman is a salesman).
Zero Net Carbon by 2019.

KyleAAA
Posts: 6760
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: Vanguard Giving Less in Dividends than Competitors?

Post by KyleAAA » Mon Oct 16, 2017 10:30 pm

Ignore dividends, they are irrelevant. Compare total returns over the long term.

Nate79
Posts: 3580
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Vanguard Giving Less in Dividends than Competitors?

Post by Nate79 » Mon Oct 16, 2017 11:45 pm

Your advisor is an idiot. After him staying such stupid stuff I hope you consider the advice in this thread to dump him.

Katietsu
Posts: 1615
Joined: Sun Sep 22, 2013 1:48 am

Re: Vanguard Giving Less in Dividends than Competitors?

Post by Katietsu » Tue Oct 17, 2017 2:34 pm

I doubt your advisor is picking anything for you. Your age, risk tolerance, etc is likely put into a software program which spits out the recommended portfolio. I actually think this is a good thing because it means that your asset allocation is not dependent on a randomly assigned advisor. I would guess that he does not actually know the answer to your question and is hoping to throw out an answer that makes most people satisfied. I would think of the advisor in this scenario like the customer service rep at a dealership - you are not talking to the mechanic.

That said, there are rational reasons to choose a fund with a higher ER over a different fund in the same category. Unfortunately, in your situation, it is quite possible that you will not have access to anyone who can give that information to you. So, you will be unable to decide if you agree with the reasoning.

Post Reply