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

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The Vanguard High Dividend Yield ETF (VYM - Free Report) made its debut on 11/10/2006, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - Large Cap Value category of the market.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

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

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

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

Managed by Vanguard, VYM has amassed assets over $49.88 billion, making it one of the largest ETFs in the Style Box - Large Cap Value. 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.

Cost & Other Expenses

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins 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 3.07%.

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.

For VYM, it has heaviest allocation in the Financials sector --about 20.30% of the portfolio --while Consumer Staples and Healthcare round out the top three.

Looking at individual holdings, Exxon Mobil Corp. (XOM - Free Report) accounts for about 3.29% of total assets, followed by Johnson & Johnson (JNJ - Free Report) and Jpmorgan Chase & Co. (JPM - Free Report) .

Performance and Risk

Year-to-date, the Vanguard High Dividend Yield ETF has added about 1.94% so far, and is up about 5.82% over the last 12 months (as of 08/10/2023). VYM has traded between $94.88 and $113.15 in this past 52-week period.

VYM has a beta of 0.84 and standard deviation of 15.37% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 466 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 $51.22 billion in assets, Vanguard Value ETF has $102.43 billion. IWD has an expense ratio of 0.18% 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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