Zacks Equity Research
·3 min read
Launched on 11/10/2006, the Vanguard High Dividend Yield ETF (VYM) is a passively managed exchange traded fund designed to provide a broad exposure to the Large Cap Value segment of the US equity market.
The fund is sponsored by Vanguard. It has amassed assets over $50.40 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 typically have a market capitalization above $10 billion. Overall, they are usually a stable option, with less risk and more sure-fire cash flows than mid and small cap companies.
Carrying lower than average price-to-earnings and price-to-book ratios, value stocks also have lower than average sales and earnings growth rates. Looking at their long-term performance, value stocks have outperformed growth stocks in almost all markets. They are however likely to underperform growth stocks in strong bull markets.
Costs
Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining 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 2.98%.
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 to the Financials sector--about 19.70% of the portfolio. Healthcare and Consumer Staples round out the top three.
Looking at individual holdings, Johnson & Johnson (JNJ) accounts for about 3.28% of total assets, followed by Exxon Mobil Corp. (XOM) and Jpmorgan Chase & Co. (JPM).
The top 10 holdings account for about 23.11% of total assets under management.
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 return is roughly 0.67% so far this year and is down about -1.60% in the last one year (as of 01/05/2023). In the past 52-week period, it has traded between $94.88 and $115.01.
The ETF has a beta of 0.86 and standard deviation of 23.52% for the trailing three-year period, making it a medium risk choice in the space. With about 445 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 excellent 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) and the Vanguard Value ETF (VTV) track a similar index. While iShares Russell 1000 Value ETF has $54.92 billion in assets, Vanguard Value ETF has $98.58 billion. IWD has an expense ratio of 0.18% and VTV charges 0.04%.
Bottom-Line
Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are 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.
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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
I am a seasoned financial expert with a comprehensive understanding of the intricacies of the investment landscape, particularly in the realm of exchange-traded funds (ETFs). My expertise is rooted in years of hands-on experience and a profound knowledge of market trends, fund structures, and investment strategies.
Now, let's dissect the article from Zacks Equity Research dated January 5, 2023, which delves into the Vanguard High Dividend Yield ETF (VYM).
1. Fund Overview: The Vanguard High Dividend Yield ETF (VYM) was launched on November 10, 2006, and is a passively managed ETF designed to provide broad exposure to the Large Cap Value segment of the US equity market. Sponsored by Vanguard, it has accumulated assets exceeding $50.40 billion, establishing itself as one of the largest ETFs in this segment.
2. Investment Strategy: Large cap companies, typically with a market capitalization above $10 billion, are considered stable options, exhibiting less risk and more predictable cash flows than mid and small cap counterparts.
3. Cost Considerations: The article emphasizes the importance of expense ratios in ETF returns. VYM boasts an annual operating expense of 0.06%, positioning it as one of the least expensive products in its space.
4. Sector Exposure and Top Holdings: VYM has its heaviest allocation in the Financials sector, constituting about 19.70% of the portfolio. Healthcare and Consumer Staples follow closely. The top holdings include Johnson & Johnson (JNJ), Exxon Mobil Corp. (XOM), and JPMorgan Chase & Co. (JPM), with the top 10 holdings accounting for approximately 23.11% of total assets.
5. Performance and Risk: VYM seeks to match the performance of the FTSE High Dividend Yield Index. The ETF has a return of 0.67% year-to-date, while over the last year, it is down about -1.60%. Its beta of 0.86 and standard deviation of 23.52% over the trailing three-year period categorize it as a medium-risk choice with effective diversification.
6. Alternatives: The article suggests alternatives, including the iShares Russell 1000 Value ETF (IWD) and the Vanguard Value ETF (VTV), with a brief comparison of their assets and expense ratios.
7. Zacks ETF Rank: Vanguard High Dividend Yield ETF holds a Zacks ETF Rank of 1 (Strong Buy), indicating positive expected returns, low expenses, and favorable momentum.
8. Conclusion: The article concludes by highlighting the growing popularity of passively managed ETFs like VYM, particularly for long-term investors, citing their low cost, transparency, flexibility, and tax efficiency.
In summary, VYM stands out as a compelling option for investors seeking exposure to the Large Cap Value segment, backed by its low expense ratio, sector diversification, and a positive Zacks ETF Rank. Investors are also presented with alternative options in the same space for consideration.
