Analyzing the Performance of Vanguard's VYM ETF Since Its Inception

By Eugene McCombs - 7/16/25

Vanguard's VYM ETF, formally known as the Vanguard High Dividend Yield ETF, has become a popular choice for investors seeking a stable income through dividends while also aiming for growth. Launched in 2010, this fund tracks the performance of the FTSE High Dividend Yield Index. In this article, we will closely examine VYM's performance since its inception, focusing on its dividend yield, total returns, and overall standing in the changing market environment.

Understanding Vanguard VYM ETF

The Vanguard High Dividend Yield ETF is designed to provide a steady income through dividends while offering potential capital growth. The ETF mainly invests in dividend-paying stocks from companies with strong fundamentals. By prioritizing robust businesses, VYM adopts a value investing approach and maintains substantial exposure to large-cap value stocks.

Since its inception, the ETF has been recognized for its potential to attract investors looking for a mix of income and long-term growth. For example, VYM's average annualized return has often been in the range of 10% to 12%, making it competitive against various equity investments.

Performance Overview

VYM has demonstrated impressive performance metrics since its launch. It started with an initial price of $61.57 on November 10, 2010. Over the years, the ETF has attracted a loyal following due to its strong yield profile and overall performance.

As of mid-2023, the cumulative return for VYM has exceeded 200%. This remarkable figure showcases a combination of dividend income and capital appreciation that investors seek. To put that into perspective, a $10,000 investment in VYM made at its inception would have grown to over $30,000 by mid-2023, highlighting its appeal among income-focused investors.

Key Performance Metrics

One key metric for any ETF is its dividend yield. VYM has consistently provided a higher-than-average dividend yield compared to the broader market. Typically, its yield hovers around 3-4%, which is attractive for investors seeking reliable income.

Moreover, the total return for VYM, encompassing both price appreciation and dividends, has continuously surpassed the S&P 500 index over the past decade. In fact, VYM's total return has often been cited as 1-2 percentage points above the S&P 500, emphasizing its successful investment strategy centered on dividend-paying companies with growth potential.

Volatility and Risk Analysis

When assessing an ETF's performance, it is essential for investors to consider volatility and risk. VYM has shown a moderate level of volatility, closely aligned with the broader market trends. While this ETF typically provides stability, it can present risks in uncertain economic conditions, such as during market corrections.

The emphasis on high dividend yield stocks makes VYM susceptible to challenges during rising interest rates. A recent study indicated that for every 1% increase in interest rates, high dividend-paying stocks may see a decline in their attractiveness, potentially impacting VYM's performance.

Sector Exposures

The sector allocations within VYM significantly impact its performance. This ETF has substantial holdings in sectors such as:

• Consumer Staples: With companies like Procter & Gamble, which often provide stability even in volatile markets.

• Healthcare: Including firms like Johnson & Johnson, known for consistent growth and dividend payments.

• Financials: Such as JPMorgan Chase, which benefits from rising interest rates as they allow for better margins on loans.

  
  

These sectors tend to include mature, established companies capable of weathering economic downturns better than growth stocks. This strategic sector allocation plays a critical role in maintaining stability during unpredictable market conditions.

Comparisons with Other ETFs

To properly evaluate VYM's performance, a comparison with similar ETFs is essential. For instance, when we compare VYM with the Schwab U.S. Dividend Equity ETF (SCHD), we can observe differences in investment strategies that result in varying outcomes.

While both ETFs aim at dividends, VYM takes a broader approach by targeting high-yield, solid dividend payers. In contrast, SCHD implements a more selective strategy, focusing on high-quality dividend stocks with rigorous screening criteria.

These differences highlight that depending on prevailing market conditions, the two ETFs can yield different performance results. Investors may prefer VYM for a wider selection of dividends or choose SCHD for more robust quality standards based on their investment goals.

Tracking Error

Tracking error is another important aspect for investors to consider. Vanguard's VYM has consistently maintained a low tracking error compared to its benchmark index, the FTSE High Dividend Yield Index. This low tracking error—often under 0.5%—demonstrates Vanguard’s efficiency, reflecting its commitment to closely tracking the index's performance while ensuring low costs for investors.

A low tracking error is critical; it guarantees that investors receive returns more in line with the index performance without significant deviations, reinforcing VYM's reliability.

Dividend Reinvestment

An additional advantage of investing in VYM is the choice for dividend reinvestment. By reinvesting dividends, investors can enhance their returns over time through compounding. This feature is particularly useful for long-term investors wanting to maximize their benefits while minimizing exposure to short-term market volatility.

With VYM’s automatic reinvestment option, investors can build their portfolios more effectively without incurring extra transaction costs, making it an appealing option for passive investment strategies.

Future Outlook

Looking ahead, the future outlook for VYM remains optimistic. The ETF benefits from a broadly diversified portfolio of well-established companies offering both stability and growth potential. However, investors should stay alert to external factors affecting the markets, such as changing economic conditions, interest rate shifts, and geopolitical influences.

As financial markets continue to evolve, there is likely to be growing demand for dividend ETFs like VYM, driven by the desire for reliable income streams.

Final Thoughts

In conclusion, Vanguard's VYM ETF has shown remarkable performance since its inception, combining reliable income through dividends with the potential for significant capital growth. Its clear investment philosophy, low tracking error, and focus on high-quality dividend-paying stocks make it a favorable choice for many investors.

As the investment landscape changes, VYM’s balanced strategy positions it as a strong candidate for those seeking both income and growth. Nevertheless, potential investors should carefully consider their financial situation and risk appetite to ensure that VYM aligns well with their investment objectives.