The Vanguard High Dividend Yield ETF: a Recession-Proof Addition to a Private Portfolio

The Vanguard High Dividend Yield ETF (VYM) is one of the best-known exchange funds representing dividend-seeking portfolios. Launched in October 2006, the Vanguard High Dividend Yield ETF is a passively managed exchange traded fund designed to provide a broad exposure to the Large Cap Value segment of the U.S. equity market. VYM pays 3.14% on a trailing-12-month basis and charges just 0.06% annually in fees, tying it for the cheapest dividend ETF on the market today. VYM has outperformed many prime benchmarks lately – sometimes, by a wide margin, beating, for example, the S&P 500 by 12% YTD. It's a must-have portfolio addition eyeing increasing signs of upcoming recession where classic growth stocks are poised to underperform – let alone expose private portfolios to risk of a substantial sectorwise correction. Fundamentally, VYM is quite impressive. It trades at slightly below 15.5x forward P/E with a 0.88 5-year Beta.

VYM tracks a custom Index derived from the FTSE Global Equity Indexes. While the proprietary underlying benchmark isn't public, large-cap equities are selected based on their forecasted dividend yields, and the said index gets rebalanced annually while focusing on keeping portfolio performing smoothly after each dividend payout’s cutoff.

However, VYM apparently lacks the growth factor and needs to be mixed with other, mostly active, funds, to produce a nice Alpha. Going forward, we expect earnings growth of 5% per annum for Vanguard's high dividend companies.

As we said, VYM has outperformed the SPDR S&P 500 ETF primarily for the mere reason of its impressive fundamentals (read above). As a result, VYM nicely complements other low-cost ETFs like USMC, SCHD, and DIA.

Below is the current sectorwise structure of VYM and their respective individual dynamics: