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Is Vanguard High Dividend Yield ETF (VYM) a Strong ETF Right Now?

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A smart beta exchange traded fund, the Vanguard High Dividend Yield ETF (VYM - Free Report) debuted on 11/10/2006, and offers broad exposure to the Style Box - Large Cap Value category of the market.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

The fund is managed by Vanguard, and has been able to amass over $41.91 billion, which makes it one of the largest ETFs in the Style Box - Large Cap Value. Before fees and expenses, VYM seeks to match the performance of the FTSE High Dividend Yield Index.

The FTSE High Dividend Yield Index which is consists of common stocks of companies that pay dividends that generally are higher than average.

Cost & Other Expenses

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

Annual operating expenses for this ETF are 0.06%, making it one of the least expensive products in the space.

VYM's 12-month trailing dividend yield is 2.85%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Financials sector - about 21.70% of the portfolio. Healthcare and Consumer Staples round out the top three.

Looking at individual holdings, Jpmorgan Chase & Co. (JPM - Free Report) accounts for about 3.72% of total assets, followed by Johnson & Johnson (JNJ - Free Report) and Home Depot Inc. (HD - Free Report) .

Performance and Risk

So far this year, VYM has lost about -3.42%, and is up about 14.03% in the last one year (as of 03/08/2022). During this past 52-week period, the fund has traded between $98.70 and $115.01.

The ETF has a beta of 0.88 and standard deviation of 22.12% for the trailing three-year period, making it a medium risk choice in the space. With about 413 holdings, it effectively diversifies company-specific risk.

Alternatives

Vanguard High Dividend Yield ETF is an excellent option for investors seeking to outperform the Style Box - Large Cap Value segment of the market. There are other ETFs in the space which investors could consider as well.

IShares Russell 1000 Value ETF (IWD - Free Report) tracks Russell 1000 Value Index and the Vanguard Value ETF (VTV - Free Report) tracks CRSP U.S. Large Cap Value Index. IShares Russell 1000 Value ETF has $55.36 billion in assets, Vanguard Value ETF has $91.71 billion. IWD has an expense ratio of 0.19% and VTV charges 0.04%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Large Cap Value.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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