Why is VTIAX dividend yield so much higher than FTIHX?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
johnanglemen
Posts: 661
Joined: Thu Oct 01, 2009 1:00 pm

Why is VTIAX dividend yield so much higher than FTIHX?

Post by johnanglemen »

Vanguard Total International (VTIAX) seemed to yield around 2.36% in 2020, versus around 1.66% for Fidelity Total International (FTIHX). Their total return, however, was almost identical. Can anyone help me understand why Vanguard's yield would be 42% higher? It would seem to make FTIHX far more tax efficient, at least last year.
User avatar
retired@50
Posts: 4168
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Why is VTIAX dividend yield so much higher than FTIHX?

Post by retired@50 »

Not sure is this is a factor, but it certainly could be...

VTIAX has 7,455 stocks.

FTIHX has 4,653 stocks.

Maybe some of the additional 2,802 companies pay dividends.

Regards,
This is one person's opinion. Nothing more.
Topic Author
johnanglemen
Posts: 661
Joined: Thu Oct 01, 2009 1:00 pm

Re: Why is VTIAX dividend yield so much higher than FTIHX?

Post by johnanglemen »

My understanding though is that the bulk (or all?) of that difference comes at the long tail of tiny companies.

I guess I'm somewhat surprised this doesn't have more discussion on Bogleheads. It seems like it dwarfs the minor expense ratio differences that are often deliberated here.
alex_686
Posts: 7518
Joined: Mon Feb 09, 2015 2:39 pm

Re: Why is VTIAX dividend yield so much higher than FTIHX?

Post by alex_686 »

johnanglemen wrote: Wed Jan 13, 2021 5:46 pm My understanding though is that the bulk (or all?) of that difference comes at the long tail of tiny companies.
Not to this effect. Tiny companies carry a very tiny weight in market cap weighted indexes.

My guess is that since they are tracking different indexes you are going to get different results. That is going to have a major impact.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
johnanglemen
Posts: 661
Joined: Thu Oct 01, 2009 1:00 pm

Re: Why is VTIAX dividend yield so much higher than FTIHX?

Post by johnanglemen »

alex_686 wrote: Wed Jan 13, 2021 6:09 pm
johnanglemen wrote: Wed Jan 13, 2021 5:46 pm My understanding though is that the bulk (or all?) of that difference comes at the long tail of tiny companies.
Not to this effect. Tiny companies carry a very tiny weight in market cap weighted indexes.

My guess is that since they are tracking different indexes you are going to get different results. That is going to have a major impact.
Aren't we saying the same thing? My point was that the small companies can't be causing this difference. And the indices are very close with respect to the large companies. So I'm baffled!
alex_686
Posts: 7518
Joined: Mon Feb 09, 2015 2:39 pm

Re: Why is VTIAX dividend yield so much higher than FTIHX?

Post by alex_686 »

johnanglemen wrote: Thu Jan 14, 2021 2:04 am Aren't we saying the same thing? My point was that the small companies can't be causing this difference. And the indices are very close with respect to the large companies. So I'm baffled!
I misunderstood what you were trying to say.

What I was trying to say was that VTIAX follows the MSCI DM & EM index. Fidelity follows the MSCI index. So different indexes.

Let me follow up with 2 more points.

What are you interested in the dividend yield? I consider this of very low importance. It does not have much explanatory power.

I would check out what MSCI has to say. You are probably assuming that they are reporting on the same period. I wouldn't make that assumption. Some funds get their fact sheets updated faster than others. We are near the calendar year, and many international companies declare their dividends around now. Certain countries have very different rules. For example, many Asian companies are required to go ex-div on 12/31. They then calculate their earnings (profits) for that year and announce in January what that dividend is. Thus you can get radically different numbers if the measurement date changes by a few days.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
johnanglemen
Posts: 661
Joined: Thu Oct 01, 2009 1:00 pm

Re: Why is VTIAX dividend yield so much higher than FTIHX?

Post by johnanglemen »

alex_686 wrote: Thu Jan 14, 2021 10:09 am
johnanglemen wrote: Thu Jan 14, 2021 2:04 am Aren't we saying the same thing? My point was that the small companies can't be causing this difference. And the indices are very close with respect to the large companies. So I'm baffled!
I misunderstood what you were trying to say.

What I was trying to say was that VTIAX follows the MSCI DM & EM index. Fidelity follows the MSCI index. So different indexes.

Let me follow up with 2 more points.

What are you interested in the dividend yield? I consider this of very low importance. It does not have much explanatory power.

I would check out what MSCI has to say. You are probably assuming that they are reporting on the same period. I wouldn't make that assumption. Some funds get their fact sheets updated faster than others. We are near the calendar year, and many international companies declare their dividends around now. Certain countries have very different rules. For example, many Asian companies are required to go ex-div on 12/31. They then calculate their earnings (profits) for that year and announce in January what that dividend is. Thus you can get radically different numbers if the measurement date changes by a few days.
The reason I'm interested is because I'm in the highest tax bracket and international funds pay a high % of nonqualified dividends, so a higher yield is a meaningful drag on my returns (given equivalent total return).

My methodology for calculating the respective yields was: Divide the per-share distribution amounts by the share prices on each of the four dividend record dates for VTIAX in 2020 and tally those. Divide the per-share distribution amount of FTIHX by its share price on its 2020 record date (FTIHX only distributes once a year). Compare.
Valuethinker
Posts: 41791
Joined: Fri May 11, 2007 11:07 am

Re: Why is VTIAX dividend yield so much higher than FTIHX?

Post by Valuethinker »

johnanglemen wrote: Wed Jan 13, 2021 7:15 am Vanguard Total International (VTIAX) seemed to yield around 2.36% in 2020, versus around 1.66% for Fidelity Total International (FTIHX). Their total return, however, was almost identical. Can anyone help me understand why Vanguard's yield would be 42% higher? It would seem to make FTIHX far more tax efficient, at least last year.
One has Emerging Markets, one does not?

Besides that 2020 was an extraordinary year - many companies passed on their dividends entirely, or slashed them heavily (Royal Dutch Shell). The exact timing of that might have a significant bearing on the yield of one fund than another (eg dividends paid in January probably got paid, thos e in March not at all).
totality
Posts: 135
Joined: Mon Aug 21, 2017 1:06 pm

Re: Why is VTIAX dividend yield so much higher than FTIHX?

Post by totality »

I don't know an explanation for what's going on with the 2020 distributions specifically, but FWIW, Morningstar has the 3-year average tax cost for those in the highest bracket at 0.79% for VTIAX, and 0.87% for FTIHX.

Both funds hold emerging markets.

As far as I know, dividend distributions are simply required by law, there's no trick that Fidelity might have to defer them indefinitely.

Vanguard's fund will probably distribute slightly less LTCG due to Vanguard's "ETF as share class" structure, but the Fidelity fund has slightly lower ER.
asif408
Posts: 2249
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: Why is VTIAX dividend yield so much higher than FTIHX?

Post by asif408 »

Unless you care how many angels can dance on the head of a pin, there is not much worth debating here, as their performance over the last several years is pretty much exactly the same, whatever composition differences they have. Since that's the case, pick the cheaper, more tax efficient once, and call it a day.
User avatar
retired@50
Posts: 4168
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Why is VTIAX dividend yield so much higher than FTIHX?

Post by retired@50 »

johnanglemen wrote: Thu Jan 14, 2021 10:31 am
The reason I'm interested is because I'm in the highest tax bracket and international funds pay a high % of nonqualified dividends, so a higher yield is a meaningful drag on my returns (given equivalent total return).
I believe much of the inefficiency comes from the presence of Emerging Markets in the fund.

If you choose a Developed Markets fund (like VTMGX) for your taxable account space, things might improve with regard to qualified dividends. However, the yield is still probably higher than a total US market fund like VTSAX.

You might be able to regain the EM exposure in a tax-deferred account by using VEMAX as a compliment to VTMGX.

Regards,
This is one person's opinion. Nothing more.
Topic Author
johnanglemen
Posts: 661
Joined: Thu Oct 01, 2009 1:00 pm

Re: Why is VTIAX dividend yield so much higher than FTIHX?

Post by johnanglemen »

I'm confused about the references to emerging markets here. My understanding is both funds include emerging markets, and thus that would not explain a difference in yields.
alex_686
Posts: 7518
Joined: Mon Feb 09, 2015 2:39 pm

Re: Why is VTIAX dividend yield so much higher than FTIHX?

Post by alex_686 »

johnanglemen wrote: Thu Jan 14, 2021 11:47 am I'm confused about the references to emerging markets here. My understanding is both funds include emerging markets, and thus that would not explain a difference in yields.
Why would you think that? The 2 funds use different MSCI indexes.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
johnanglemen
Posts: 661
Joined: Thu Oct 01, 2009 1:00 pm

Re: Why is VTIAX dividend yield so much higher than FTIHX?

Post by johnanglemen »

Valuethinker wrote: Thu Jan 14, 2021 10:50 am
johnanglemen wrote: Wed Jan 13, 2021 7:15 am Vanguard Total International (VTIAX) seemed to yield around 2.36% in 2020, versus around 1.66% for Fidelity Total International (FTIHX). Their total return, however, was almost identical. Can anyone help me understand why Vanguard's yield would be 42% higher? It would seem to make FTIHX far more tax efficient, at least last year.
One has Emerging Markets, one does not?

Besides that 2020 was an extraordinary year - many companies passed on their dividends entirely, or slashed them heavily (Royal Dutch Shell). The exact timing of that might have a significant bearing on the yield of one fund than another (eg dividends paid in January probably got paid, thos e in March not at all).
I believe they both have emerging markets.

I know that dividends were strange in 2020 but that strangeness should affect both funds equally shouldn't it?
Topic Author
johnanglemen
Posts: 661
Joined: Thu Oct 01, 2009 1:00 pm

Re: Why is VTIAX dividend yield so much higher than FTIHX?

Post by johnanglemen »

alex_686 wrote: Thu Jan 14, 2021 11:51 am
johnanglemen wrote: Thu Jan 14, 2021 11:47 am I'm confused about the references to emerging markets here. My understanding is both funds include emerging markets, and thus that would not explain a difference in yields.
Why would you think that? The 2 funds use different MSCI indexes.
https://fundresearch.fidelity.com/mutua ... /31635V638 says:
Objective
Seeks to provide investment results that correspond to the total return of foreign developed and emerging stock markets.

Strategy
Normally investing at least 80% of assets in securities included in the MSCI ACWI (All Country World Index) ex USA Investable Market Index and in depository receipts representing securities included in the index. The MSCI ACWI (All Country World Index) ex USA Investable Market Index is a market capitalization-weighted index designed to measure the investable equity market performance for global investors of large, mid, and small-cap stocks in developed and emerging markets, excluding the U.S. Using statistical sampling techniques based on such factors as capitalization, industry exposures, dividend yield, price/earnings (P/E) ratio, price/book (P/B) ratio, earnings growth, country weightings, and the effect of foreign taxes to attempt to replicate the returns of the MSCI ACWI (All Country World Index) ex USA Investable Market Index. Lending securities to earn income for the fund.
https://investor.vanguard.com/mutual-fu ... view/vtiax says:
Product summary
This fund offers investors a low cost way to gain equity exposure to both developed and emerging international economies. The fund tracks stock markets all over the globe, with the exception of the United States. Because it invests in non-U.S. stocks, including those in developed and emerging markets, the fund can be more volatile than a domestic fund. Long-term investors who want to add a diversified international equity position to their portfolio might want to consider this fund as an option.
Last edited by johnanglemen on Thu Jan 14, 2021 11:58 am, edited 1 time in total.
User avatar
retired@50
Posts: 4168
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Why is VTIAX dividend yield so much higher than FTIHX?

Post by retired@50 »

The 2020 estimated QDI percentages from Vanguard are as follows:

Developed Markets Index (VTMGX) = 79%
Emerging Markets Index (VEMAX) = 50%

Total International Index (VTIAX) = 72%

Source: https://advisors.vanguard.com/iwe/pdf/t ... FYEEST.pdf

I can't explain the differences between Fidelity and Vanguard funds, but I suspect my general point about emerging markets providing a lower level of qualified dividends is valid (assuming tax-efficiency is your goal).

Regards,
This is one person's opinion. Nothing more.
Topic Author
johnanglemen
Posts: 661
Joined: Thu Oct 01, 2009 1:00 pm

Re: Why is VTIAX dividend yield so much higher than FTIHX?

Post by johnanglemen »

I also calculate that this held true in 2019. I calculate a yield of 3.14% for Vanguard/VTIAX in 2019 vs 2.70% for Fidelity/FTIHX, despite near-identical total return (21.94% vs 21.89%) :confused
Post Reply