The Vanguard Australian Shares High Yield ETF (ASX: VHY) is one of the most popular exchange-traded funds (ETFs) when it comes to searching for passive income.
The VHY ETF aims to provide investors with low-cost exposure to companies listed on the ASX that have higher forecasted dividends compared to other ASX shares.
Australians may already know the ASX share market has a reputation for having a sizeable dividend yield. However, by just focusing on the higher-yielding ASX dividend shares, the fund is able to give a higher-than-average yield.
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Is the VHY ETF diversified?
The ASX has a significant weighting towards ASX bank shares and ASX mining shares – that's not a surprise considering the scale of Australia's banking and mining sectors.
ASX bank shares and ASX mining shares are also known for having large passive dividend income yields.
How does the fund avoid having too much invested in those areas?
Vanguard says that share diversification is achieved by restricting the proportion invested in any one industry to 40% of the total ETF and 10% in any one company. Australian real estate investment trusts (REITs) are excluded from the index. There are a total of 75 businesses in the portfolio
At the end of October 2025, these were the following sector allocations:
- Financials (39.8%)
- Mining (22.1%)
- Energy (10%)
- Industrials (8.5%)
- Telecommunications (5.9%)
- Consumer discretionary (5.4%)
- Consumer staples (4.8%)
- Utilities (2.8%)
- Healthcare (0.5%)
- Technology (0.1%)
As we can see, the VHY ETF is leaning on financials (banks) and mining to do the heavy lifting in the portfolio, though energy and industrials also play a reasonable part.
It's certainly true that having 75 different businesses is more diversified than owning one specific business.
Which ASX shares does the Vanguard Australian Shares High Yield ETF own?
The biggest allocations in the portfolio are with many recognisable ASX blue-chip shares.
At the end of October, these were the biggest positions in the portfolio:
- BHP Group Ltd (ASX: BHP)
- Commonwealth Bank of Australia (ASX: CBA)
- National Australia Bank Ltd (ASX: NAB)
- Westpac Banking Corp (ASX: WBC)
- ANZ Group Holdings Ltd (ASX: ANZ)
- Telstra Group Ltd (ASX: TLS)
- Rio Tinto Ltd (ASX: RIO)
- Woodside Energy Group Ltd (ASX: WDS)
- Transurban Group (ASX: TCL)
- Macquarie Group Ltd (ASX: MQG)
There are dozens of other holdings, but the above ten have the biggest influence on the overall returns and distributions.
Is the VHY ETF a buy for passive income?
Investors considering this investment are likely focused on the level of dividend income they can expect to receive from the fund.
At the end of October, the Vanguard Australian Shares High Yield ETF had a forecast 4.1% and a projected grossed-up dividend yield of 5.6%, including franking credits, according to Vanguard.
That's a fairly attractive dividend yield, though it has been larger in the past.
Since the VHY ETF's inception, it has delivered an average total return of 9.7% per year, with 3.21% attributed to capital growth and 6.5% to distributions. Sometimes the distribution can include crystallised (sold) capital gains.
If yield is the focus, it's not a bad option, in my view, but I'm not expecting a lot of capital growth from higher-yielding investments like this one.
For me, there are other higher-yielding ASX shares and investments that could be more appealing.
