Vanguard International High Dividend Yield Fund Admiral Shares VIHAX

Vanguard International High Dividend Yield strikes a nice balance between higher-yielding stocks and distressed yield traps. Its ability to manage risk should provide an advantage over most of its Morningstar Category peers.

This fund tracks the FTSE All-World ex-US High Dividend Yield Index. It starts with large- and mid-cap stocks in the FTSE All-World ex-US Index, excluding REITs, and ranks them by their expected dividend yield over the next 12 months. The index selects those representing the higher-yielding half of eligible dividend-paying stocks. Focusing on dividend yield gives the portfolio a value orientation and can be a source of risk. High yields can stem from stocks with poor prospects and declining prices. Some of these firms may also pay out a high percentage of their earnings as dividends, reducing the portion that can be reinvested to grow their businesses.

Yield traps, or stocks with unsustainably high dividends, pose a significant risk to dividend funds. But this strategy effectively limits its exposure to risky companies. Sweeping half the dividend-paying universe into its portfolio diversifies stock-specific risks, which limits the influence of distressed firms. Weighting constituents by market cap also emphasizes larger, more stable firms that should have the capacity to continue making dividend payments. Market-cap weighting further reduces the impact of yield traps by reducing their weight as their prices fall.

Leaning toward large, profitable firms has aided the fund's performance. It has tended to carve out an edge against its MSCI ACWI ex-USA Value Index category benchmark with lower volatility than its average category peer. The fund's low fee of 0.17% is among the cheapest in its category, providing a durable advantage.

While annual fees are cheap, buyers of this strategy's mutual fund share classes are subject to a 0.25% purchase fee intended to minimize the impact of transaction costs on the fund. This benefits current fundholders at the expense of new investors. The exchange-traded fund version of this strategy is not subject to the purchase fee.

This fund's simple, repeatable approach effectively balances risk and reward. It provides exposure to dividend companies while limiting most of the negative side effects, warranting an Above Average Process rating.

The portfolio managers replicate the FTSE All-World ex-US High Dividend Yield Index. This benchmark pulls its holdings from the FTSE All-World ex-US Index, which includes firms listed in developed and emerging markets. The strategy excludes REITs and stocks that are not expected to pay a regular dividend over the next 12 months and then ranks those that remain by their expected dividend yield over the next year. The portfolio adds stocks, starting with the highest-yielding names and continuing until it captures 50% of the dividend-paying universe’s market cap. It then weights these stocks by their float-adjusted market cap, which pushes the portfolio toward large stable firms that are more likely to continue making dividend payments.

Stocks must remain in the highest-yielding 55% of the selection universe by market cap to stay in the index. New stocks are added once they break into the highest-yielding 45%. This approach, along with market-cap weighting, mitigates turnover and the associated trading costs. The index reconstitutes semiannually in March and September.

This strategy has delivered on its high-yield objective. Historically, its trailing 12-month dividend yield has been about 1.5 to 2.0 percentage points higher than the MSCI ACWI ex-USA Index's.

Diversification remains central to this strategy despite prioritizing dividend yield. This portfolio typically holds over 1,000 stocks, with about 15% of assets in its top 10 holdings. No holding will heavily influence the fund’s performance alone. Large companies with steady earnings headline the portfolio, including industry leaders Shell, Toyota, Novartis, and RBC. These types of companies smooth out the return volatility typical for value strategies.

Market-cap-weighting tilts the portfolio toward larger dividend-paying names, resulting in a portfolio that exhibits higher quality and lower volatility. This fund's ROIC has consistently been higher than the MSCI ACWI ex-USA Value Index's. Sector weightings tend to be relatively close to the bogy, but exposure to financials has crept higher and now represents over 40% of the portfolio.

Vanguard's equity index group earns an Above Average People Pillar for its well-supported and stable management team adept at leveraging Vanguard's comprehensive resources. Its portfolio managers benefit from the firm's global infrastructure and advanced portfolio management technology, which facilitates cost-efficient trading around the globe. The infrequent turnover of managers, coupled with Vanguard's practice of rotating them across various funds, enhances their expertise and understanding of different market segments.

The fund's managers directly handle trading, providing them with deeper insights into the portfolio's operations than a stand-alone trader might have. They are backed by a global team of dedicated personnel and employ sophisticated, scalable technology to minimize their workload and enhance tracking accuracy. Vanguard's independent risk-management team plays a crucial role in ensuring its funds adhere to predetermined tracking tolerances. It collaborates closely with the managers to oversee trades and address potential issues proactively. Vanguard compensates managers based on tracking error and excess return metrics to foster a culture of accountability and ensure the management team's interests are closely tied to investors'.

Vanguard maintains its High Parent Pillar rating as it continues to grow under new leadership.

CEO Salim Ramji has had a busy first year captaining Vanguard’s crew, and the ship remains pointed in the right direction. The firm made its largest round of fee cuts in early 2025, which came at an estimated cost of USD 350 million. It established a separate division dedicated to its advice and wealth management efforts, a sign that it wants to seriously compete within those lines of business. Asset growth has continued to be a huge success. Only BlackRock’s inflows rival the money Vanguard is taking in. Likewise, the number of clients it serves has more than doubled since 2015.

Despite that success, an ever-growing number of clients has presented a challenge: Vanguard can’t grow its services fast enough to keep up with demand. In some instances, it has had to curb certain services and capabilities or raise fees on others to cope, causing some loyal clients to criticize what they perceive as deteriorating services.

Vanguard has ambitions to bring its disruptive legacy to the bond market. It created roughly a dozen low-cost bond exchange-traded funds for US investors and several others abroad over the 12 months through June 2025. All have low fees in their respective categories, and the actively managed strategies align with Vanguard’s philosophy. They are relatively easy to understand and are conservatively managed.

Vanguard has another opportunity to prove that clients are still its priority. On the surface, its endeavor into the high-fee deal-making world of private assets alongside Wellington and Blackstone looks like a cultural mismatch. So far, the collaboration hasn’t produced anything that’s concerning.

Emphasizing large, profitable dividend-payers has been a winning strategy compared with the MSCI ACWI ex-USA Value Index. From its February 2016 inception through October 2025, the fund beat the benchmark by 60 basis points annualized. It also exhibited lower volatility, putting the fund's risk-adjusted performance even further ahead of its benchmark.

This fund has outperformed its category index relatively consistently. Since its inception, the strategy has captured 100% of the index's upside and 96% of its downside, which has been a winning proposition for investors in any market.

But this fund isn't immune to drawdowns. It still fell over 35% in the coronavirus-driven selloff and dropped as far as 20% in 2022, before ending the year down 7%. Currency risks loom large here. Until this year, the US dollar's dominance has been a major headwind for foreign stock funds. While currency risk increases volatility, it shouldn't have a major impact on long-term total return.

Vanguard Intl Hi Div Yld Adm's Prospectus Adjusted Expense Ratio is 0.16% per year. It places it in the cheapest quintile of the Morningstar US Fund Foreign Large Value Category, where the median fee is 0.87% per year. This cost positioning translates into a Medalist Rating Price Score of 2.41, which reflects its relative price positioning within the category. The Price Score ranges from -2.50 (most expensive) to +2.50 (cheapest), with higher scores indicating better cost competitiveness.