Zacks Equity Research
·4 min read
The Vanguard High Dividend Yield ETF (VYM) 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.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.
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.
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.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor & Index
Managed by Vanguard, VYM has amassed assets over $47.69 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
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.
Annual operating expenses for VYM are 0.06%, which makes it one of the least expensive products in the space.
VYM's 12-month trailing dividend yield is 3.23%.
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.
Representing 19.20% of the portfolio, the fund has heaviest allocation to the Financials sector; Healthcare and Consumer Staples round out the top three.
Taking into account individual holdings, Exxon Mobil Corp. (XOM) accounts for about 3.25% of the fund's total assets, followed by Jpmorgan Chase & Co. (JPM) and Johnson & Johnson (JNJ).
Performance and Risk
The ETF has lost about -4.75% and is down about -2.41% so far this year and in the past one year (as of 05/25/2023), respectively. VYM has traded between $94.88 and $113.15 during this last 52-week period.
VYM has a beta of 0.84 and standard deviation of 16.30% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 440 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) tracks Russell 1000 Value Index and the Vanguard Value ETF (VTV) tracks CRSP U.S. Large Cap Value Index. IShares Russell 1000 Value ETF has $48.36 billion in assets, Vanguard Value ETF has $98.54 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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Vanguard High Dividend Yield ETF (VYM): ETF Research Reports
JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
Johnson & Johnson (JNJ) : Free Stock Analysis Report
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
Vanguard Value ETF (VTV): ETF Research Reports
iShares Russell 1000 Value ETF (IWD): ETF Research Reports
As an enthusiast and expert in the field of financial markets, particularly exchange-traded funds (ETFs) and smart beta strategies, I bring a depth of knowledge and understanding to the discussion on the Vanguard High Dividend Yield ETF (VYM) and related concepts.
Firstly, the article mentions the debut of VYM on November 10, 2006, as a smart beta ETF providing exposure to the Large Cap Value category through the Style Box. Smart beta ETFs differ from traditional market cap-weighted indexes, aiming to beat the market through non-cap weighted strategies. These strategies involve stock selection based on fundamental characteristics or a mix thereof.
The article further explores the fund's sponsor and index, highlighting Vanguard as the manager of VYM, with assets exceeding $47.69 billion. The ETF seeks to replicate the performance of the FTSE High Dividend Yield Index, which consists of common stocks of companies with dividends generally higher than average.
Cost is a crucial factor in evaluating ETFs, and VYM stands out with an annual operating expense ratio of 0.06%, making it one of the least expensive options in its space. Additionally, the 12-month trailing dividend yield is mentioned at 3.23%.
Sector exposure and top holdings are key considerations for investors, and VYM allocates 19.20% to the Financials sector, with Healthcare and Consumer Staples rounding out the top three sectors. The fund's top individual holdings include Exxon Mobil Corp. (XOM), Jpmorgan Chase & Co. (JPM), and Johnson & Johnson (JNJ).
Performance and risk metrics are crucial for investors assessing the fund's historical and potential future returns. The article notes that, as of May 25, 2023, VYM has experienced a -4.75% loss year-to-date and a -2.41% loss over the past one year. The ETF's beta of 0.84 and standard deviation of 16.30% position it as a medium-risk choice in its category, with about 440 holdings providing effective diversification.
The article concludes by suggesting alternatives, such as iShares Russell 1000 Value ETF (IWD) and Vanguard Value ETF (VTV), for investors interested in the Large Cap Value segment. It also emphasizes the importance of considering expense ratios and risk when selecting ETFs.
In summary, the Vanguard High Dividend Yield ETF (VYM) is presented as an attractive option for investors seeking exposure to the Large Cap Value segment, and the article provides valuable insights into its structure, performance, and alternatives within the smart beta ETF space.
