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Is Vanguard Dividend Appreciation ETF (VIG) a Strong ETF Right Now?

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Designed to provide broad exposure to the Style Box - Large Cap Blend category of the market, the Vanguard Dividend Appreciation ETF (VIG - Free Report) is a smart beta exchange traded fund launched on 04/21/2006.

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.

Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.

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.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other 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

Because the fund has amassed over $76.43 billion, this makes it one of the largest ETFs in the Style Box - Large Cap Blend. VIG is managed by Vanguard. This particular fund, before fees and expenses, seeks to match the performance of the NASDAQ US Dividend Achievers Select Index.

The S&P U.S. Dividend Growers Index consists of common stocks of companies that have a record of increasing dividends over time.

Cost & Other Expenses

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Operating expenses on an annual basis are 0.06% for VIG, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 1.80%.

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.

VIG's heaviest allocation is in the Information Technology sector, which is about 23.50% of the portfolio. Its Financials and Healthcare round out the top three.

Looking at individual holdings, Microsoft Corp (MSFT - Free Report) accounts for about 5.52% of total assets, followed by Apple Inc (AAPL - Free Report) and Unitedhealth Group Inc (UNH - Free Report) .

Performance and Risk

The ETF has added roughly 4.60% so far this year and it's up approximately 19.23% in the last one year (as of 02/27/2024). In the past 52-week period, it has traded between $147.24 and $178.77.

The ETF has a beta of 0.84 and standard deviation of 14.91% for the trailing three-year period, making it a medium risk choice in the space. With about 314 holdings, it effectively diversifies company-specific risk.

Alternatives

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

WisdomTree U.S. Quality Dividend Growth ETF (DGRW - Free Report) tracks WisdomTree U.S. Quality Dividend Growth Index and the iShares Core Dividend Growth ETF (DGRO - Free Report) tracks Morningstar US Dividend Growth Index. WisdomTree U.S. Quality Dividend Growth ETF has $12.11 billion in assets, iShares Core Dividend Growth ETF has $26.15 billion. DGRW has an expense ratio of 0.28% and DGRO charges 0.08%.

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 Blend.

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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