The Vanguard Australian Shares High Yield ETF (ASX: VHY) is one of the most popular ASX-listed exchange-traded funds (ETFs) that provides a high dividend yield. At the end of February 2025, it was $4.4 billion in size.

However, as the chart above shows, the VHY ETF fell in February and is down further since the start of the month. Overall, the Vanguard Australian Shares High Yield ETF unit price is down 5.7% from 17 February 2025.

When shares drop in price, I get excited because it suggests the ASX share is better value and may be more attractive. Below is my take on whether it's a good time to invest in the VHY ETF.

What has caused the decline?

The unit price of an ETF is largely dictated by the performance of the underlying holdings.

In the VHY ETF's case, it's focused on businesses like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), Telstra Group Ltd (ASX: TLS), Woodside Energy Group Ltd (ASX: WDS), Rio Tinto Ltd (ASX: RIO), and ANZ Group Holdings Ltd (ASX: ANZ). These are businesses that have higher forecast dividends compared to other ASX-listed companies.

With the ASX ETF's fall, the collective value of 67 businesses in the portfolio has declined by approximately 5%.

Why did those ASX shares decline? It seems investors are worried by the fact that the US is putting tariffs on particular countries and particular goods. This could lead to both higher inflation and a headwind for economic growth.

While tariffs may not have a significant impact on the banks, the trade war could have an impact on the iron ore miners because of the tariffs on China – it's the main buyer of iron ore globally. A weaker China could mean less demand for Australian iron ore. However, it's also possible that China could launch (further) stimulus to boost its economy, which may boost demand for iron ore.

Is it time to invest in the VHY ETF?

I'd prefer to invest in shares when prices are lower rather than higher. The last time the Vanguard Australian Shares High Yield ETF was as low as this sell-off period was in August 2024. This seems like a decent price, though a 5% decline isn't exactly huge.

However, the decline in the unit price does mean the dividend yield has been boosted for prospective investors. I'll demonstrate how that works – if the dividend yield was 5%, then a 5% decline becomes 5.25%.

According to Vanguard, at the end of February 2025, the VHY ETF had a forecast grossed-up dividend yield of 6.4% (which includes franking credits). That's a solid yield for an ETF, though over 60% of the fund is invested in ASX bank shares and ASX mining shares. So, it may be useful for interested investors to add diversification with other ASX dividend shares, such as real estate investment trusts (REITs).