Vanguard High Dividend Yield ETF家政服务13825404095

A steady approach to higher yield.

Bryan Armour

Director

Summary

Vanguard High Dividend Yield strikes a balance between higher yield and managing the associated risk. Market-cap-weighting steers the portfolio toward more stable large-cap stocks and away from those whose dividends may be distressed.

This fund tracks the FTSE High Dividend Yield Index. It starts with large- and mid-cap stocks in the FTSE USA Index, excluding REITs, and ranks them by their expected dividend yield over the next 12 months. The index selects those representing the higher-yielding half of eligible dividend-paying stocks. Selected holdings are weighted by float-adjusted market cap, pulling the portfolio toward larger, more stable stocks.

Focusing on dividend yield gives the portfolio a value orientation that can open the portfolio to risk. Value traps, or stocks with deteriorating fundamentals and declining prices, pose a significant risk to dividend funds. But this strategy limits its exposure to risky companies. Sweeping half of the dividend-paying universe into its portfolio diversifies stock-specific risks and limits the influence of distressed firms. Market-cap-weighting also emphasizes larger, more-stable firms that should have the capacity to continue making dividend payments. This mitigates the impact of value traps because their weight drops as their prices fall.

Leaning toward stable companies comes at the cost of maximizing dividend yield. But the fund's yield still typically surpasses the Russell 1000 Value Index by about 1 percentage point. Stability extended to performance as well, with the fund historically experiencing a standard deviation consistently lower than its Morningstar Category bogy.

Like other dividend funds, this portfolio's sector composition can deviate substantially from the category index, owing to its yield orientation. Market-cap-weighting normally keeps these differences small, but the fund’s yield screen can still exclude a significant portion of the market during extreme conditions. Between 2010 and 2018, for instance, the fund’s allocation to financial stocks was anywhere from 15 to 20 percentage points below the category average. This is an artifact of the dividend cuts across much of the sector that occurred after the financial crisis. While this did not hurt the fund’s performance significantly, sector bets tend to be an uncompensated risk.

This fund’s cost-conscious approach sets it apart from the crowd. Its 0.06% fee is among the lowest in the large value category.

by Bryan Armour

Vanguard High Dividend Yield casts a wide net and uses market-cap-weighting to rein in risk, delivering a competitive yield and strong risk-adjusted performance.

Bryan Armour

Director

Process High

These features underpin the fund’s High Process Pillar rating.

The fund tracks the FTSE High Dividend Yield Index, which captures the highest-yielding half of the large- and mid-cap dividend-paying stock universe. The index starts with the FTSE USA Index and ranks its constituents by their projected 12-month yield. It then adds stocks by descending rank until it captures 50% of the dividend-paying universe’s market cap. As it aims for 50% market-cap coverage of this cohort, the fund tends to sweep in about 400 to 450 stocks, but that number increased to about 550 in 2024. Companies that have not paid dividends in the past 12 months or are not expected to pay one in the next 12 months are not eligible. REITs are also left out.

The index implements buffer rules at its semiannual reconstitution. Current holdings will stay in the index until their yield falls below the 55th percentile, while new entrants can only be added after their yield passes the 45th percentile. This has helped to keep a lid on turnover:

This strategy has delivered on its high-yield objective. Historically, its trailing 12-month dividend yield has been about 1 percentage point higher than the Russell 1000 Value.

Diversification remains central to this strategy despite prioritizing dividend yield. This portfolio typically holds over 400 stocks while hovering around 25% of assets in its top 10 holdings in recent years. Large companies with steady earnings headline the portfolio, including industry leaders Johnson & Johnson, The Home Depot, and JPMorgan Chase. These types of companies tend to smooth out the return volatility.

by Bryan Armour

Vanguard's Equity Index Group earns an Above Average People Pillar for its well-supported and stable management team adept at leveraging Vanguard's comprehensive resources.

Bryan Armour

Director

People Above Average

Its portfolio managers benefit from the firm's global infrastructure and advanced portfolio management technology, which facilitates cost-efficient trading around the globe. The infrequent turnover of managers, coupled with Vanguard's practice of rotating them across various funds, enhances their expertise and understanding of different market segments.

The fund's managers directly handle trading, providing them with deeper insights into the portfolio's operations than a stand-alone trader might have. They are backed by a global team of dedicated personnel and employ sophisticated, scalable technology to minimize their workload and enhance tracking accuracy. Vanguard's independent risk-management team plays a crucial role in ensuring its funds adhere to predetermined tracking tolerances. It collaborates closely with the managers to oversee trades and address potential issues proactively. Vanguard compensates managers based on tracking error and excess return metrics to foster a culture of accountability and ensure that the management team's interests are closely tied to investors' interests.

by Bryan Armour

The Vanguard Group retains a High Parent rating as its new CEO settles in.

Daniel Sotiroff

Senior Analyst

Parent High

Former BlackRock executive Salim Ramji succeeded Tim Buckley as Vanguard’s fifth chief executive officer on July 8, 2024. Ramji left BlackRock in January 2024 as its global head of iShares and index investing, and his appointment represents a departure from Vanguard’s historical norm. The firm’s prior CEOs came from its internal executive ranks, making Ramji the first external candidate to take the reins.

Ramji inherited a firm that is succeeding in many ways. Recent fund launches fit the low-cost Vanguard mold, and it cut the minimum investment for its popular robo-advisor platform to just USD 100 from USD 3,000. Investor-friendly efforts like those are part of the reason Vanguard hasn’t struggled to garner assets. It managed more than USD 9.1 trillion from roughly 50 million clients globally at the end of June 2024. It took in more than USD 144 billion over the first half of the year, second only to BlackRock.

Yet, there’s no shortage of challenges awaiting Ramji. Vanguard hasn’t been immune to investors abandoning actively managed mutual funds for low-cost exchange-traded funds. Customer complaints remain a sore spot, and Vanguard recently received some backlash for raising fees on some of its brokerage services. It has struggled to grow outside of the US. Efforts to expand in markets like Germany and China were abandoned after only a few years.

Vanguard’s investor-first mentality remains its North Star. It has invested heavily in its advice business and ETF lineup over the past several years. Ramji accumulated a lot of experience in both areas at BlackRock, but it remains to be seen what his appointment means for Vanguard’s direction.

by Daniel Sotiroff

Emphasizing large, profitable dividend payers helped this fund weather-stormy markets better than the Russell 1000 Value index.

Bryan Armour

Director

Performance

Over the 10 years through September 2024, the fund beat the benchmark by 1.16 percentage points annualized while exhibiting lower return volatility, putting the fund even further ahead of its bogy in risk-adjusted terms.

This fund has beaten its category index consistently since inception. Outperformance during stress periods has been a hallmark. For example, this fund beat its category index by 3.62 percentage points during the covid-19 selloff between Feb. 19, 2020, and March 23, 2020. This fund's advantage grew during rocky markets in 2022, with the fund besting its category bogy by over 7 percentage points over that period.

But this fund isn't immune to drawdowns. It still fell 34% in the covid-19 selloff and dropped 0.42% in 2022. However, this fund should continue to carve out an edge over its category index and peers over the long run, thanks to low costs of ownership and a solid strategy.

by Bryan Armour

It’s critical to evaluate expenses, as they come directly out of returns.

Bryan Armour

Director

Price

Based on our assessment of the fund’s People, Process, and Parent Pillars in the context of these expenses, we think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Medalist Rating of Gold.

by Bryan Armour