Vanguard’s High Dividend Yield ETF (VYM) is a smart beta ETF that launched on November 10, 2006, and provides wide exposure to the Style Box – Large Cap Value area of the market. This article examines the strength of the ETF along with other associated factors. Before going into the details of VYM, let us delve into the concept of Smart Beta ETFs.
Smart Beta ETFs Explained
ETFs based on market capitalization weighted indices, which aim to reflect the whole market or an individual market sector, have been flooding the market for some time.
An economical, easy and transparent strategy to mirror the returns of a market is to invest in market cap indexes.
For an individual interested in beating the market via company selection, smart beta funds are the way to go; a fund class that is recognized for pursuing non-cap weighted methods.
Companies in this index are chosen based on their risk-return potential; non-cap weighted techniques focus on stocks based on specific fundamental characteristics or a combination of the same.
From equal-weighting, one of the simplest methods, to more advanced strategies such as fundamental and volatility/momentum based weighting, the smart beta market offers a wide range of options to investors. However, not all of these approaches have proven to be successful.
Fund Sponsor & Index
The Vanguard-managed fund has accumulated about $41.91 billion, making it one of the Style Box – Large Cap Value’s largest ETFs. VYM aims to replicate the FTSE High Dividend Yield Index’s performance before fees and expenses.
Companies that pay out dividends at a rate that is greater than the industry average are included in the FTSE High Dividend Yield Index.
Sector Exposure and Top Holdings
Despite the various benefits of ETFs, such as diversified exposure that reduces the risk of investing in a single company, it is critical to thoroughly investigate the holdings of an ETF before making a decision to invest. Almost all ETFs are openly traded and reveal their holdings on a regular basis, making them highly transparent products.
Financials make up the bulk of this ETF’s holdings, accounting for around 21.70 percent of its total value. This sector is followed by Healthcare & Consumer Staples. To begin with, JPMorgan Chase & Co. (JPM) has 3.72 percent of total assets, trailed by JNJ (JNJ) and Home Depot Inc. (HD).
Cost & Other Expenses
Expense ratios are a significant consideration for investors in ETFs; in the long run, cheaper funds may potentially beat their more costly counterparts if all other factors stay constant. It is one of the most cost-effective ETFs available, with annual operating expenditures of only 0.06 percent.
During the last 12 months, the dividend yield for VYM has been 2.85 percent.
Performance and Risk
VYM has lost around -3.42 percent so far this year, and has gained about 14.03 percent over the last year (as of 03/08/2022). The fund’s price ranged from $98.70 to $115.01 during the last 52 weeks.
With a beta of 0.88 and a standard deviation of 22.12 percent over the last three years, the ETF is a medium-risk option in the category. It efficiently diversifies company-specific risk with its approximately 413 holdings.
What Other Alternatives Are Out There?
The Vanguard High Dividend Yield ETF is a fantastic choice for those who are looking to outperform the Style Box – Large Cap Value area of the market in terms of returns. Other ETFs are available for investors to choose from.
The Russell 1000 Value Index is tracked by the IShares Russell 1000 Value ETF (IWD), while the CRSP U.S. Large Cap Value Index is tracked by the Vanguard Value ETF (VTV). There are $55.36 billion in assets in the IShares Russell 1000 Value ETF, compared to $91.71 billion in the Vanguard Value ETF. IWD charges a 0.19 percent expense ratio, whereas VTV charges a 0.04 percent.
Traditional market cap weighted ETFs that try to replicate the results of the Style Box – Large Cap Value are an excellent choice for those seeking lower-cost, lower-risk investments.
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