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.
As an avid financial analyst with an in-depth understanding of the US equity market, particularly in the realm of exchange-traded funds (ETFs), I bring a wealth of expertise to the discussion. Over the years, I have closely monitored market trends, conducted extensive research, and actively participated in the financial community, gaining a reputation for providing insightful analyses and informed perspectives.
Now, let's delve into the intricacies of the article, breaking down the key concepts and shedding light on the nuances:
1. Vanguard High Dividend Yield ETF (VYM):
- Launch Date: November 10, 2006.
- Sponsor: Vanguard.
- Assets: Over $48.12 billion, making it one of the largest ETFs in the Large Cap Value segment of the US equity market.
2. Large Cap Value:
- Large cap companies: Market capitalization above $10 billion.
- Stability: Large caps are considered more stable due to predictable cash flows and lower volatility compared to mid and small cap counterparts.
3. Value Stocks:
- Characteristics: Lower than average price-to-earnings, price-to-book ratios, sales, and earnings growth rates.
- Performance: Historically, value stocks have outperformed growth stocks in the long term.
4. Costs:
- Expense Ratio: VYM has an annual operating expense of 0.06%, making it one of the least expensive ETFs in its segment.
5. Sector Exposure and Top Holdings:
- Sector Allocation: Heaviest allocation to the Financials sector (about 18.70%), followed by Healthcare and Consumer Staples.
- Top Holdings:
- Exxon Mobil Corp. (XOM) - 3.25% of total assets.
- Jpmorgan Chase & Co. (JPM).
- Johnson & Johnson (JNJ).
6. Performance and Risk:
- Benchmark: Seeks to match the performance of the FTSE High Dividend Yield Index.
- Performance: Down about -3.90% YTD, up 0.17% in the last year (as of 05/12/2023).
- Risk Metrics:
- Beta: 0.84.
- Standard Deviation: 16.54% (medium risk).
- Diversification: About 440 holdings, effectively spreading company-specific risk.
7. Alternatives:
- Zacks ETF Rank: VYM holds a Zacks ETF Rank of 1 (Strong Buy).
- Other ETFs in the Space:
- iShares Russell 1000 Value ETF (IWD).
- Vanguard Value ETF (VTV).
- Similar indices, varying in asset size and expense ratios.
8. Bottom-Line:
- Passive Management: VYM is a passively managed ETF, aligning with the trend of investors turning to low-cost, transparent, and tax-efficient funds.
- Investment Options: Investors can also consider alternatives like IWD and VTV, each with its own set of attributes.
In conclusion, the Vanguard High Dividend Yield ETF (VYM) stands out as a compelling option for those seeking exposure to the Large Cap Value segment, backed by its low costs, transparent approach, and a diversified portfolio. The article provides valuable insights for both retail and institutional investors looking to navigate the ever-evolving landscape of ETF investing.
