The stock market is moving sideways after President Trump’s tariffs and investors are worried about the recovery. The market took a nosedive, and many stocks ended up in deep red territory the past 5 trading days. Amid the ongoing uncertainty, smart investors are scooping up stocks moving closer to the 52-week low. But if you are someone who isn’t ready to bet on a company and wants to lower your risk, consider investing in exchange-traded funds. It will give you exposure to multiple sectors at a low risk and low cost. Known for some of the safest funds, Vanguard has several ETFs from which to choose. Its high-yield ETF, the Vanguard High Dividend Yield Index Fund ETF (NYSEARCA:VYM | VYM Price Prediction) has become a safe bet for investors today.
The Vanguard High Dividend Yield ETF was launched in 2006 and is a passively managed fund. The fund invests in large-cap stocks and is one of the best ETFs in an uncertain market. By investing in large-cap companies, the fund ensures that it holds stable companies with a steady income and financial stability. These stocks are less volatile as compared to small or mid-cap companies. There might be market volatility today but in the long term, the large-cap stocks tend to perform well. Let’s look at five reasons it is an ideal bet in the current market situation.
Steady performance
Vanguard funds are known for steady performance despite market volatility. The VYM tries to match the performance of the FTSE High Dividend Yield Index and invests in the top dividend-paying companies. The fund is down 8.9% year-to-date and 2.6% in the last 12 months. It has gained over 50% in the past five years and has an NAV of $116.19. Over the last six months, it has been trading between $116 and $135.
Reliable returns
When compared to S&P 500 (-13.74%) and Nasdaq 100 (-12.51%), VYM has performed significantly better. The fund is down -8.90% year-to-date. However, an improvement in the economy can boost its performance. It has generated 8.59% returns since inception and 9.99% in the ten years. Its one-year return is 9.69% while three-year returns are 8%. When compared to the yield on treasury bills, VYM stands strong. It distributes dividends quarterly and distributed $0.85 per share last month. VYM has a dividend yield more than double that of the S&P 500 average.
Optimal diversification
VYM invests in 529 stocks which offers ultimate diversification and reduces company-specific risks. The idea of investing in an ETF is to reduce sector-specific and company-specific risks and VYM successfully does that. The fund holdings include:
- Financials: 22.90%
- Industrials: 11.90%
- Healthcare: 11.50%
- Consumer staples : 10.70%
- Consumer discretionary: 10.40%
Its biggest allocation lies in the financial sector and looking at the individual stocks, Broadcom Inc., JPMorgan Chase & Co., Exxon Mobil Corp., Walmart Inc., and Procter & Gamble Co. account for about 16% of the total assets. The dividend yield for each of these companies is as follows:
- Broadcom Inc.: 1.53%
- JPMorgan Chase & Co.: 2.61%
- Exxon Mobil Corp.: 3.85%
- Walmart Inc.: 1.12%
- Procter & Gamble Co: 2.51%
Low cost
Investors are concerned about the cost of investing and the ETF has an annual expense ratio of 0.06%, making it one of the low-cost funds to own. An annual expense ratio below 0.25%, is considered good.
Low risk
Since VYM focuses on the top blue chip companies, the risk associated with the investment is low. The large-cap stocks that VYM holds are well-known companies that are strong enough to withstand the market ups and downs and have a stable balance sheet which allows them to continue paying dividends. There could be some amount of risk when investing in individual stocks but it reduces significantly when the same stocks are held in an ETF. The fund offers a safety net for volatile periods.
Passively managed ETFs have become a top choice for investors trying to navigate the ongoing market uncertainty. VYM is a low-cost ETF with promising returns, transparency, and high flexibility. It can help achieve optimal portfolio diversification while reducing company-specific risks. If you think that the market is not going to recover anytime soon, Vanguard’s VYM could be your safest bet today.
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