VNQ vs VYM: Comparison of Two Popular ETFs

When it comes to investing, choosing the right exchange-traded fund (ETF) can make all the difference.

Two popular options for investors are the Vanguard Real Estate ETF (VNQ) and the Vanguard High Dividend Yield ETF (VYM).

VNQ vs VYM: While both funds are managed by Vanguard and offer exposure to the U.S. stock market, they differ in their investment strategies and performance.

In this article, we will compare VNQ vs VYM to help you make an informed investment decision.

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VNQ and VYM have different investment objectives. VNQ invests in real estate investment trusts (REITs), which are companies that own and manage income-producing real estate properties. VYM, on the other hand, invests in stocks of companies that pay higher-than-average dividends. As a result, VNQ may be a better choice for investors looking for exposure to the real estate market, while VYM may be more suitable for those seeking income from dividends.

Before deciding which ETF to invest in, it’s important to consider factors such as performance, dividend profiles, and risk and volatility. In the next sections, we will analyze these factors in detail to help you determine which fund may be the better choice for your investment goals.

Key Takeaways VNQ vs VYM

  • VNQ invests in real estate investment trusts, while VYM invests in stocks of companies that pay higher-than-average dividends.
  • VNQ may be a better choice for investors looking for exposure to the real estate market, while VYM may be more suitable for those seeking income from dividends.
  • When deciding which ETF to invest in, it’s important to consider factors such as performance, dividend profiles, and risk and volatility.

Overview of VNQ vs VYM

Key Characteristics

VNQ and VYM are both exchange-traded funds (ETFs) offered by Vanguard. While VNQ tracks the MSCI US Investable Market Real Estate 25/50 Index, VYM tracks the FTSE High Dividend Yield Index. VNQ is focused on real estate investment trusts (REITs), while VYM is focused on high dividend yield stocks.

Both ETFs have low expense ratios, with VNQ having a slightly higher expense ratio of 0.12% compared to VYM’s expense ratio of 0.06%. VNQ has a higher dividend yield of 4.50% compared to VYM’s 3.16%. However, VYM has outperformed VNQ in terms of returns over the past ten years.

Issuer Information

Both VNQ and VYM are issued by Vanguard, one of the largest investment management companies in the world. Vanguard offers a wide range of ETFs and mutual funds, with a focus on low-cost, passive index funds.

Underlying Indexes

VNQ tracks the MSCI US Investable Market Real Estate 25/50 Index, which includes companies involved in the ownership, management, and development of real estate. The index is market-cap weighted, with the top holdings including companies such as American Tower Corp, Prologis Inc, and Crown Castle International Corp.

VYM tracks the FTSE High Dividend Yield Index, which includes companies with high dividend yields. The index is dividend weighted, with the top holdings including companies such as Johnson & Johnson, JPMorgan Chase & Co, and Procter & Gamble Co.

In summary, VNQ and VYM are both ETFs offered by Vanguard with different investment strategies. VNQ focuses on real estate investment trusts, while VYM focuses on high dividend yield stocks. Both ETFs have low expense ratios and are issued by Vanguard. VNQ tracks the MSCI US Investable Market Real Estate 25/50 Index, while VYM tracks the FTSE High Dividend Yield Index.

Performance Analysis VNQ vs VYM

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YTD Return

When comparing the YTD return of VNQ and VYM, it is important to note that both ETFs have performed well. As of the current date, VNQ has a YTD return of 31.34%, while VYM has a YTD return of 26.58%. This means that VNQ has outperformed VYM by 4.76% in terms of YTD return.

Historical Returns

Looking at the historical returns of VNQ and VYM, we can see that both ETFs have had strong performance over the past 10 years. According to ETF Database, VNQ has provided an annualized return of 9.94% over the past 10 years, while VYM has provided an annualized return of 12.48%. This means that VYM has outperformed VNQ by 2.54% in terms of 10-year annualized return.

When we look at the 5-year annualized return, we see that VNQ has provided an annualized return of 8.68%, while VYM has provided an annualized return of 14.13%. This means that VYM has outperformed VNQ by a significant margin of 5.45% in terms of 5-year annualized return.

Over the past 3 years, VNQ has provided an annualized return of 10.63%, while VYM has provided an annualized return of 12.52%. This means that VYM has outperformed VNQ by 1.89% in terms of 3-year annualized return.

In terms of 1-year return, VNQ has provided a return of 30.41%, while VYM has provided a return of 23.90%. This means that VNQ has outperformed VYM by 6.51% in terms of 1-year return.

Overall, both VNQ and VYM have had strong historical returns, but VYM has outperformed VNQ in terms of 5-year and 10-year annualized returns, while VNQ has outperformed VYM in terms of 1-year return.

Dividend Profiles

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When it comes to dividend profiles, VNQ and VYM have some key differences. Here’s what you need to know.

Dividend Yield Comparison

The dividend yield is a key metric to consider when comparing VNQ and VYM. As of the current date, VNQ has a dividend yield of 4.50%, while VYM has a yield of 3.10%. This means that if you invest $10,000 in VNQ, you can expect to receive $450 in dividends over the course of a year, compared to $310 if you invest the same amount in VYM.

It’s worth noting that dividend yields can fluctuate over time, and past performance is not a guarantee of future results. However, VNQ has consistently had a higher yield than VYM in recent years, which is something to keep in mind if you’re looking for a higher income stream from your investments.

Dividend Growth

Another important factor to consider is dividend growth. This refers to the rate at which a company or fund increases its dividend payments over time. In general, investors prefer to see consistent and steady dividend growth, as it can indicate a healthy and stable company or fund.

According to historical data, VNQ has had an average annual dividend growth rate of 12.32% over the past 5 years, while VYM has had a growth rate of 19.98%. This suggests that VYM has been increasing its dividend payments at a faster rate than VNQ.

However, it’s important to note that dividend growth rates can be influenced by a variety of factors, including market conditions and company/fund performance. It’s also worth considering that VNQ has a higher starting yield than VYM, which may be more important to some investors than dividend growth rates.

Overall, when it comes to dividend profiles, VNQ and VYM have their own unique strengths and weaknesses. Consider your investment goals and risk tolerance when deciding which fund is right for you.

Risk and Volatility

When it comes to investing in ETFs, understanding the level of risk and volatility is essential. In this section, we will compare the risk and volatility of VNQ and VYM.

Expense Ratios

The expense ratio is the annual fee charged by the ETF provider to manage the fund. VNQ and VYM have expense ratios of 0.12% and 0.06%, respectively. This means that VYM is less expensive to own than VNQ. However, it is important to note that expense ratios should not be the only factor considered when choosing an ETF.

Risk-Adjusted Performance

One way to measure an ETF’s risk-adjusted performance is by using the Sharpe ratio. The Sharpe ratio measures the return of an investment relative to its risk. VNQ has a Sharpe ratio of 0.64, while VYM has a Sharpe ratio of 0.76. This means that VYM has a higher risk-adjusted performance than VNQ.

Another way to measure risk is by looking at the daily standard deviation. VNQ has a daily standard deviation of 1.24%, while VYM has a daily standard deviation of 0.96%. This means that VYM is less volatile than VNQ.

Finally, we can look at the maximum drawdown, which measures the largest peak-to-trough decline of an investment. VNQ has a maximum drawdown of -73.07%, while VYM has a maximum drawdown of -56.98%. This means that VNQ has experienced a larger decline than VYM during the worst market downturns.

Correlation

It is also important to consider the correlation between VNQ and VYM. Correlation measures how closely two investments move in relation to each other. The correlation between VNQ and VYM is 0.69, which means that they are moderately positively correlated. This indicates that they may move in the same direction, but not necessarily to the same extent.

In summary, VNQ has a higher expense ratio, lower risk-adjusted performance, higher volatility, and larger maximum drawdown than VYM. However, VNQ and VYM are moderately positively correlated. When deciding between VNQ and VYM, it is important to consider your investment goals, risk tolerance, and overall portfolio diversification.

Investment Considerations

Diversification Benefits

When considering an investment in either VNQ or VYM, it is important to evaluate the diversification benefits offered by each fund. VNQ is a Real Estate Investment Trust (REIT) that invests in companies that own and manage real estate properties. On the other hand, VYM is an equity income fund that invests in companies with a high dividend yield. As such, VNQ provides exposure to the real estate sector, while VYM provides exposure to a broad range of dividend-paying stocks.

Investing in both VNQ and VYM can provide diversification benefits to your portfolio. By investing in both funds, you can gain exposure to both the real estate and equity income sectors. This can help reduce your overall portfolio risk, as it can help mitigate the impact of market fluctuations in any one sector.

Investor Profile Suitability

Your investor profile can also help determine which fund is better suited for your investment goals. VNQ is best suited for investors seeking exposure to the real estate sector, while VYM is best suited for investors seeking exposure to dividend-paying stocks. VNQ may be a good fit for investors looking for a more defensive investment strategy, as the real estate sector tends to be less volatile than other sectors. VYM may be a good fit for investors seeking higher current income, as the fund has a higher dividend yield than VNQ.

When evaluating your investor profile, it is important to consider your risk tolerance, investment goals, and time horizon. If you have a longer time horizon and are willing to take on more risk, you may want to consider investing in both VNQ and VYM to gain exposure to both the real estate and equity income sectors. If you have a shorter time horizon and are looking for more defensive investment options, VNQ may be a better fit for your investment goals. If you are seeking higher current income, VYM may be a better fit for your investment goals.

Overall, both VNQ and VYM are solid investment options for investors seeking exposure to the United States market. VNQ provides exposure to the real estate sector, while VYM provides exposure to a broad range of dividend-paying stocks. When evaluating which fund is best suited for your investment goals, it is important to consider your investor profile, risk tolerance, and investment goals.

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