VANGUARD HIGH DIVIDEND YIELD ETF (VYM)

Transcription

1 VANGUARD HIGH DIVIDEND YIELD ETF (VYM) $88.88 USD Risk: Med Zacks ETF Rank 3 - Hold Fund Type Issuer Benchmark Index Large Cap ETFs VANGUARD FTSE HIGH DIVIDEND YIELD INDEX VYM Sector Weights Date of Inception 11/10/2006 AUM (million) $21, Number of holdings in the ETF 397 Assets in top ten holdings 31.11% Expense Ratio 0.08% Dividend Yield 2.70% Price Chart Price Fundamentals of VYM Current Price $ Week High $ Week Low $75.39 NAV (12/31/2017) $ Yr ETF Ret (01/19/2018) 21.08% Risk Statistics Beta (against S&P 500) 0.91 Standard Deviation 11.51% R % Zacks Opinion For a dividend-focused approach in the U.S. equities ETF space, a closer look at VYM is warranted. The ETF is best suited for income-oriented investors seeking higher longerterm returns with a medium risk. Geopolitical risks and monetary stimulus in various corners of the world have kept bond yields low globally. Though the Fed enacted five rate hikes since December 2015, interest rates are still at subdued levels. These make dividend-paying ETFs like VYM quite attractive. Notably, high dividend-paying stocks play a defensive role in the portfolio and help to lower its overall volatility in uncertain times. However, chances of further Fed policy tightening in the coming days and hint of global policy tightening can act as a negative for the fund. Key Points Exposure to high dividend paying stocks Moderate company concentration risk Low expense ratio and trading costs Reasons to Buy Scope for regular current income amid low rate environment Reasons to Sell Underperforms in a rising rate scenario and in a bull equity market The data on the front page and all the charts in the report represent market data as of 01/19/2018, while the report's text is as of 01/10/2018

2 Holdings Breakdown The fund presently holds 399 securities with around 30.63% allocation toward its top 10 holdings. This signifies that the performance of the fund is moderately dependent on the top 10 holdings. Among individual holdings, Microsoft Corp occupies the top position closely followed by Johnson & Johnson and J. P. Morgan. Among sector holdings, the fund has assigned double-digit allocation to information technology, financials, healthcare, consumer staples and industrials. Performance Investors demand for higher current income in the wake of a market sell-off has helped the fund to wait out the volatility to some extent. The fund started third-quarter 2016 on a moderate note but fell at the start of the fourth quarter due to election uncertainty. Later, in November, it once again started gaining following Trump s victory. Since then, the fund is on an upward trajectory barring some occasional dips on rising rate concerns. But bond yields started to rise faster in 2018 on prospect of rising rates globally and renewed Trump trade on the passage of the tax bill. The fund was up about 18.4% in the last one year (as of Jan 5, 2018). VYM Top 5 Holdings Weight % MICROSOFT CORP 6.33% 2-Year Comparative JOHNSON&JOHNSON 3.72% JPMORGAN CHASE 3.64% EXXON MOBIL CORP 3.50% WELLS FARGO & CO 2.65% Investment Objective VYM replicates FTSE High Dividend Yield Index. The index is derived from the U.S. component of the FTSE Global Equity Index Series (GEIS). VYM significantly invests all of its assets in the stocks that the index holds. All the stocks in the index deliver high dividend yields. Analysis The fund focuses on top large-cap securities in the dividend stock space that are the highest dividend payers. This is supported by a good level of annual dividend yield of 2.75%. This level of dividend yield has attracted many investors, helping the fund to build an asset base of $21.7 billion. Additionally, the fund s significant exposure toward the defensive sectors like consumer staples and health care, which are resistant to economic cycles, help in delivering good returns amid economic uncertainty. Also, the fund appears to be one of cheapest options in the large-cap value equities space, charging 8 basis points annually Fundamentals VYM SPY IVV Zacks Rank Price $88.88 $ $ AUM (million) $21, $293, $152, Expense Ratio 0.08% 0.09% 0.04% Dividend Yield 2.70% 1.71% 1.67% Assets in top % 20.09% 20.06% Beta YTD % Price Change 3.80% 5.08% 5.07% Description Launched in November 2006, Vanguard High Dividend Yield ETF (VYM) is a passively managed exchange traded fund designed to track the performance of the FTSE High Dividend Yield Index. The FTSE High Dividend Yield Index has been constructed to select securities on the basis of the highest dividend yields.

3 Detailed Analysis The global stock market has been upbeat since the start of 2017 on the Trump trade. However, the market has rested a bit to start Q2 of 2017 as increased volatility impeded investments. To add to this, the never-ending fickleness in crude oil prices, speculation over the Fed s next move after a few minor rate hikes and political uncertainty weighed on investors sentiments, flaring up volatility. Meanwhile, the greenback lost ground on some weak economic data. Broader market has lost their post-election (Donald Trump s win) enthusiasm. Along with geopolitical tensions, overvaluation concerns and doubts over the materialization of Trump s promised all pro-business policies were being seen as downside risks to the stock market s ascent. Plus, the Fed has also started deleveraging the balance sheet. If this happens, chances of faster rate hike ahead will be slim as two aggressive tightening moves will not be likely at a time. In short, a patient Fed and political uncertainty may keep bond yields at check. All these issues may bolster the need for dividend investing. Also, investors should note that most of the dividend-paying companies are stable and mature with solid cash flows that provide greater stability and safety in a volatile environment. Notably, dividends accounted for more than 40% of total market returns over a long-time horizon (say over the past 80 years). The companies that pay dividends generally act as a hedge against economic uncertainty. However, if the Fed tightens its policy faster in the wake of an improving economy, yields may rise and in turn may act as a deterrent to dividend investing. Plus, the passing of the tax reform at the end of 2017 could also boost the broader market, which can go against the fund. But prospect of higher volatility in the market still can prove to be a tailwind in Investors hungry for yields may thus tap high-yielding options in quest for regular current income which can even make up for capital losses. Alternatives ishares High Dividend ETF (HDV) This product provides exposure to 74 dividend stocks by tracking the Morningstar Dividend Yield Focus Index. From a sector look, the $6.77-billion fund is well spread out with double-digit exposure to Consumer Staples, Energy, Telecom and IT. It charges 8 bps in fee per year. The fund yields about 3.25% annually. ALPS Sector Dividend Dogs ETF (SDOG) 01/10/2018 This $2.40-billion fund applies the Dogs of the Dow Theory on a sector-by-sector basis using the S&P 500. This could be easily done by selecting the five highest yielding securities in each of the 10 GICS sectors and equally weighing them. These higher yielding stocks will appreciate in order to bring their yields in line with the market, potentially leading to outsized gains. This approach results in a portfolio of 51 stocks with each security accounting for less than 2.51% of total assets. The fund gives investors roughly equal exposure to all sectors. It charges 40 bps and yields 3.19%.

4 Glossary ACTIVE MANAGEMENT: ALPHA: AMERICAN DEPOSITORY RECEIPT: AUTHORIZED PARTICIPANTS: AVERAGE YIELD TO MATURITY: BASKET: BETA: BID/ASK SPREAD: CONTRARIAN: CREATION UNIT: DIVIDEND YIELD: EFFECTIVE DURATION: ENHANCED INDEXING: EXCHANGE TRADED FUND: EXCHANGE-TRADED NOTE: EXPENSE RATIO: FUND OF FUNDS: FUNDAMENTAL INDEXING: INDEX: INVERSE ETF: INVESTMENT STYLE: LEVERAGED ETF: A portfolio management strategy where the manager uses variety of skills and attributes (like top-down approach, bottom-up approach, value investing, growth investing or absolute returns strategy) in the portfolio so that the fundoutperforms the benchmark index. A measure of outperformance that can be calculated as the return of the fund minus the benchmark s return. A positivealpha indicates the fund has outperformed the benchmark index whereas negative alpha means underperformance. A negotiable non-us security that trades in the US financial market. An entity chosen by an ETF sponsor to undertake the responsibility of obtaining the underlyingassets needed to create an ETF. Authorized participants are typically large institutional organizations, such as market makers orspecialists. The expected rate of return on a fund s portfolio if it is held until the maturity while reinvestingall coupon payments at the bond yield. A portfolio of several stocks or securities that are selected for the inclusion in the fund with different weightings. A measure of risk compared to the market benchmark. A beta of less than 1 indicates that the fund is less volatile than themarket and vice versa. The difference between the highest price that a buyer is willing to pay (often called bid price) for theunderlying assets of securities of the fund and the lowest price that a seller is willing to accept (often called as offer or ask price) forit. An investment style that goes against prevailing market trends (i.e. against the thinking of many) by buying assetsthat are performing poorly and then selling when they perform well. A set of securities or underlying assets that can be created or redeemed by Authorized Participants for a certainnumber of ETF shares with the fund or trust. The creation units can vary in size ranging from 25,000 to 600,000 shares each. A financial ratio that measures how much a company pays out in dividends each year relative to its share price.it can be calculated as annual dividend per share divided by price per share. A measure of a fund s interest-rate sensitivity. The longer the duration, the more sensitive is the fund to the changes in interest rates. An investment idea that attempts to amplify the returns of an underlying asset or the fund with lowertracking error. Enhanced indexing combines elements of both passive and active management. The fund represents a basket of securities (that typically track an index), and is listed and tradeslike stocks on an exchange. ETFs can be traded throughout the day in amounts as little as one share. The note is a senior, unsecured, unsubordinated debt issued by a major bank. It has a maturity dateand is backed only by the credit of the issuer. The ETN however, do not actually hold any security, instead an issuing bankpromises to pay to investors the amount reflected by the index s performance (minus fees). An annual fee that the fund or ETF charge from the investors in order to provide exposure to the underlyingasset. A fund that invests in other funds instead of investing directly in stocks, bonds or other securities. A type of equity index in which stocks or securities are selected based on fundamental metrics such as revenue, dividend rates, earnings or book value. An imaginary portfolio of securities representing a particular market or a portion of it. An ETF that provides opposite (inverse) exposure in the underlying index though use of various financial andmoney market instruments over a specified period of time. This ETF is similar to holding a short position in order to take profit fromthe falling prices. A different style of investing such as growth, value and blend in a basket of asset. An ETF that uses various financial instruments to amplify the returns (up to 3 times) of the underlying index over a specified period of time.

5 LIQUIDITY: MARKET CAPITALIZATION: NET ASSET VALUE: PASSIVE MANAGEMENT: PORTFOLIO TURNOVER: R-SQUARED: SECTOR ROTATION: The degree to which an asset or security can be bought or sold in the market without affecting the asset s price. Liquidity is characterized by a high level of trading activity. Represents the aggregate value of the fund or underlying asset. Value of an ETF on per share basis and is calculated as total asset minus total liabilities divided by number of shares. A portfolio management strategy where the fund is the mirror image of the performance of the benchmark index. A percentage of underlying assets bought and sold in a given year. A measure of correlation with the market benchmark. An R-Squared of 100 indicates perfect correlation of the fund that of market while an R-Squared of 0 indicates no correlation. A strategy that involves moving from one sector to another by selling the underlying assets or securities ofa sector and purchasing securities or assets in another. SEC YIELD: A standard yield that the bond funds must pay to its shareholders based on the most recent 30- day period covered by the fund s filings with the SEC. SHORT ETF: STYLE BOX: TARGET DATE FUND: TRACKING ERROR: TREASURY INFLATION PROTECTED SECURITIES: VOLATILITY: VOLUME: YIELD CURVE: WEIGHTED MATURITY: An investment strategy that offers to take short position in the underlying index through various financial instruments. A visual representation of the fund, created by Morningstar, to determine risk-return structures of the portfolio. A style box is comprised of nine squares, or categories, that classify securities by size (small, mid and large cap) along the vertical axis and by value, growth and blend characteristics along the horizontal axis. A fund that invests exclusively in the assets or securities with a certain defined maturity. A measure of how closely a portfolio follows the benchmark index. It is calculated as the difference between the returns of fund portfolio and the benchmark index. The bonds that are issued by the U.S. Treasury to protect against inflation.these securities pay interest on an inflated-principal amount (principal rises with inflation) and when the securities mature, investors get either the inflation-adjusted principal or the original principal, whichever is greater. A measure of risk calculated by the annualized daily movement in the fund price. The lower the volatility of the fund the better it is. The number of shares traded in the market during a given period of time. A line that plots the interest rates of bonds having equal credit quality but differing maturity dates. The yield curveprovides an idea of future interest rate change and economic activity. It generally compares the three-month, two-year, five-yearand 30-year U.S. Treasury debt The remaining time to maturity of the underlying securities in a portfolio. A fund with a short averagematurity is more sensitive to current interest rate fluctuations than one with longer average maturity. 01/10/2018 Disclosure This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Please read the prospectus carefully. The data on the front page and all the charts in the report represent market data as of 01/19/2018, while the report's text is as of 01/10/2018