Back to top

Image: Bigstock

Should Vanguard High Dividend Yield ETF (VYM) Be on Your Investing Radar?

Read MoreHide Full Article

If you're interested in broad exposure to the Large Cap Value segment of the US equity market, look no further than the Vanguard High Dividend Yield ETF (VYM - Free Report) , a passively managed exchange traded fund launched on 11/10/2006.

The fund is sponsored by Vanguard. It has amassed assets over $48.12 billion, making it one of the largest ETFs attempting to match the Large Cap Value segment of the US equity market.

Why Large Cap Value

Large cap companies usually have a market capitalization above $10 billion. Considered a more stable option, large cap companies boast more predictable cash flows and are less volatile than their mid and small cap counterparts.

Value stocks have lower than average price-to-earnings and price-to-book ratios. They also have lower than average sales and earnings growth rates. While value stocks have outperformed growth stocks in nearly all markets when you consider long-term performance, growth stocks are more likely to outpace value stocks in strong bull markets.

Costs

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are the same.

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

It has a 12-month trailing dividend yield of 3.20%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Financials sector--about 18.70% of the portfolio. Healthcare and Consumer Staples round out the top three.

Looking at individual holdings, Exxon Mobil Corp. (XOM - Free Report) accounts for about 3.25% of total assets, followed by Jpmorgan Chase & Co. (JPM - Free Report) and Johnson & Johnson (JNJ - Free Report) .

Performance and Risk

VYM seeks to match the performance of the FTSE High Dividend Yield Index before fees and expenses. The FTSE High Dividend Yield Index which is consists of common stocks of companies that pay dividends that generally are higher than average.

The ETF has lost about -3.90% so far this year and is up about 0.17% in the last one year (as of 05/12/2023). In the past 52-week period, it has traded between $94.88 and $113.15.

The ETF has a beta of 0.84 and standard deviation of 16.54% for the trailing three-year period, making it a medium risk choice in the space. With about 440 holdings, it effectively diversifies company-specific risk.

Alternatives

Vanguard High Dividend Yield ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, VYM is an outstanding option for investors seeking exposure to the Style Box - Large Cap Value segment of the market. There are other additional ETFs in the space that investors could consider as well.

The iShares Russell 1000 Value ETF (IWD - Free Report) and the Vanguard Value ETF (VTV - Free Report) track a similar index. While iShares Russell 1000 Value ETF has $49.02 billion in assets, Vanguard Value ETF has $99.70 billion. IWD has an expense ratio of 0.18% and VTV charges 0.04%.

Bottom-Line

Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.

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.

Published in