Since many investment opportunities abound nowadays, how will you choose the fund that will be a new asset to suit your portfolio? Comparing two exchange-traded funds (ETFs) from Vanguard, let’s have a VYM vs. VIG showdown.
Vanguard is one of the most popular ETF managers and has an impressive history in terms of its performance. It is also popular among investors for charging very low fees compared to other fund managers in the market.
This article offers a detailed comparison of the two funds, VYM and VIG, including their key features, composition, and performance. As an investor, if you aim to invest in funds that show significant growth and generate revenue, this comparison may be very useful.
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VYM: Vanguard High Dividend Yield ETF
VYM, or the Vanguard High Dividend Yield ETF, tracks the FTSE High Dividend Yield Index. The FTSE tracks the stocks that offer higher-than-average dividend profits. Therefore, similar to the FTSE index, VYM comprises securities selected based on the forecast that they will yield an above-average dividend in the upcoming year.
VYM comprises around 419 individual stocks and a dividend yield of 3.39%. The fund has a minimum investment equal to the price of one share and an expense ratio of 0.06%.
VYM aims to provide high dividend payouts to investors by holding stocks with high dividend yields, excluding the REITs (Real Estate Investment Trusts). VYM has around $23.3 billion in assets.
VIG: Vanguard Dividend Appreciation Index Fund ETF
VIG, the Vanguard Dividend Appreciation Index Fund, is a dividend growth ETF that tracks the NASDAQ US Dividend Achievers Select Index.
VIG mirrors the NASDAQ index’s performance, which comprises a specific group of securities with an increasing annual dividend payout for at least 10 consecutive years. The fund also screens and eliminates stocks that are at risk of cutting the dividend payments.
VIG is a diverse fund that offers exposure to domestic companies with dividend growth stocks. It implies that the companies have a history of paying increasing dividends annually. The companies in the fund are characterized by financial strength and exhibit consistent growth that the dividends have risen annually for at least a decade.
VIG has 184 total stocks with an annual dividend yield of 1.81%. The fund has a minimum investment equal to the price of 1 share and an expense ratio of 0.06%. VIG has $35.8 billion in net assets.
VYM vs. VIG: Key Differences
From the above description of the two funds, we can see that both VYM and VIG are dividend-oriented ETFs offered by the Vanguard group. Both the funds have a minimum investment equal to the price of a share and an expense ratio of 0.06%.
Here are some key differences between the two ETFs:
- VYM tracks the FTSE High Dividend Yield Index, while VIG NASDAQ US Dividend Achievers Select Index.
- The total number of stocks for VYM is 419, while the total number of stocks for VIG is 184.
- VYM has a dividend yield of 3.39%, while VIG has an annual dividend yield of 1.81%.
- VYM seeks to pay investors now, while VIG is investing in companies that offer to pay dividends in the future.
VYM vs VIG: Composition Differences
The VYM portfolio comprises above-average dividend yield stocks, excluding the REITs.
In contrast, the VIG portfolio primarily consists of dividend growth stocks, i.e., companies having an increasing dividend for a minimum of 10 consecutive years.
Here is a breakdown of the percentage composition of VIG and VYM sector-wise.
| S.No | Sector | VIG |
| 4 | Industrial | 25% |
| 1 | Consumer service | 20% |
| 5 | Health care | 12.6% |
| 2 | Consumer goods | 11.5% |
| 6 | Financial | 10.8% |
| 7 | Technology | 10.1% |
| 10 | Utilities | 6.6% |
| 3 | Basic material | 3.4% |
| 8 | Oil and Gas | NA |
| 9 | Telecommunications | NA |
| S.No | Sector | VYM |
| 5 | Health care | 16.2% |
| 6 | Financial | 15.8% |
| 2 | Consumer goods | 15% |
| 7 | Technology | 11.2% |
| 10 | Utilities | 10% |
| 1 | Consumer service | 9.1% |
| 4 | Industrial | 8.4% |
| 8 | Oil and Gas | 5.5% |
| 9 | Telecommunications | 5.5% |
| 3 | Basic material | 3.3% |
Among the sectors mentioned above, the telecommunication, financial sector, utilities, and consumer goods are well-known for offering high dividend yields. However, their dividend yield may not necessarily grow over the long term.
Since REITs are excluded from the funds, you wouldn’t find any exposure to the real estate sector from both VIG and VYM.
Look at the percentage composition of the funds: notice that VYM has more weightage in the same sectors. But, VIG has more invested in the consumer service and industrial sector, while it does not offer stocks from the telecommunication and the oil and gas sector.
So, it would not be wrong to assume that the VIG and VYM differ in composition.
Now that we have looked at the sector-wise composition differences between the two funds let’s look at their composition in terms of large, middle, and small-cap stocks to assess the exposure level to certain market segments.
Here is a tabular chart for the two funds.
| S.no | Cap-size | VIG | VYM |
| 1 | Large-cap companies | 85% | 86.5% |
| 2 | Mid-size companies | 12.5% | 10.8% |
| 3 | Small-cap companies | 2.5% | 2.7% |
From the above table, the market capitalization of VIG and VYM are somewhat similar. Considering the percentage composition of VIG, we may find it very similar to the US stock market.
While the sector-wise distribution of the funds reflected major differences, the market capitalization distribution reveals very small differences. VIG has a higher percentage of assets of mid-sized companies in its portfolio, while VYM has a higher percentage of assets of large-cap companies.
VYM vs. VIG: Risk Analysis
Fund volatility is a critical risk metric. If we consider the volatility of VIG, it is 3.96% monthly and 12.74% annually. Considering these figures, we can safely assume that VIG is quite a stable fund in terms of volatility.
The volatility of VYM is factored at 4.11% monthly and 14.23% annually. It is comparatively higher than that of VIG but still less than the average volatility rate of the US stock market.
From the associated risk point of view, we would suggest that VIG is a better choice as it is less volatile.
Additionally, it displayed a maximum drawdown of 40% during the last crash of 2008. In comparison, the maximum drawdown for VYM was 50%.
VYM vs. VIG: Performance Differences
While the decision to invest in a particular fund depends on investor preferences, the performance and resultant returns make the most difference at the end of the day.
Since the two funds’ inception in 2006, VIG has outperformed VYM in most aspects. Its stellar performance is reflected in its periodic returns, displayed in the table below.
The fund has enabled investors to earn more than 13% in recent years.
Here is the return of VIG:
| Period | Return |
| Year-to-date return | -10.41% |
| 1-month return | 0.12% |
| 3-month return | -2.98% |
| 1-year return | -0.02% |
| 3-year return | 12.79% |
| 5-year return | 13.03% |
| 10-year return | 12.91% |
On the other hand, if we consider the performance of VYM during the same period, while it is quite remarkable, it is still slightly lower than that of VIG.
| Period | Return |
| Year-to-date return | -0.48% |
| 1-month return | 1.29% |
| 3-month return | 0.82% |
| 1-year return | 5.79% |
| 3-year return | 12.37% |
| 5-year return | 11.11% |
| 10-year return | 12.58% |
VYM may have a higher percentage for the one-year mark, but its overall performance has been lower in comparison.
VYM vs. VIG: Fees
The expense ratio of both dividend-oriented funds is set at 0.06%. If you consider the other investment options in the ETF landscape, VIG and VYM are significantly cheaper.
To have a better understanding, consider the following scenario. If you invest around $10,000 in either of the funds, you will incur a fee expense of only $6 annually. Can you find another option in the market which can beat that? We hardly think so.
Besides the VTI offered by Vanguard, which has a fee expense of 0.03%, hardly any other option comes to mind. Other ETFs like DGRO also charge a low fee of 0.08%. However, it is still higher than both VYM and VIG.
If we compare the two funds, it is easy to see that VIG offers higher returns, lower volatility, and lower drawdowns as well. It constitutes a diverse portfolio where companies have provided reliable dividend growth over the years.
Frequently Asked Questions (FAQs) – VYM vs. VIG
Is VYM a Good Long-Term Investment?
VYM is undoubtedly a lucrative and smart long-term investment. It provides exposure to a wide range of securities and does not require much maintenance.
Which Vanguard Dividend Fund Is Best?
While Vanguard is renowned for offering lucrative dividend funds with high returns and low expenses, the best Vanguard dividend fund depends on your preference.
VYM and VIG are among the top 5 Vanguard dividend funds.
Which Is Better, VYM or VIG?
VYM has outperformed VIG during the past years in terms of returns. It is also less volatile and has smaller drawdowns.
While the results speak for themselves, it’s important to note that historical returns are no guarantee of future success.
Conclusion – VYM vs. VIG
On all the standard metrics used in assessing funds, VIG came out a-blazing. It has lower volatility and, most especially, higher returns. A major drawback for VYM is their scheme to pay investors in the future instead of now.
Ultimately, choosing one over the other depends on your investment strategies and risk-adjusted appetite. You don’t want to lose money, right? So, hedge your funds appropriately, considering how volatile markets can be.
Whether you select VYM or VIG as a new addition to your investment portfolio, keep your eye on the most important factor: your investment objectives and financial goals. With this post discussing the pros and cons of both EFTs, we hope you will make an informed decision on which fund to choose.
If you want to read about the comparisons and contrasts between other investment options, read our related articles:
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- RSP Vs. SPY: What’s Right For You? [Comparing ETFs]
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Marjolein is a financial consultant who has built over €4,000 monthly passive income and saves over 70% of her income. Read Radicals’ inspiring story, from stuck in the 9-to-5 to loving life. Feel free to send Radical a message at the bottom of this page