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VNQ vs. VYM: What’s The Difference?

The Vanguard Real Estate Index Fund ETF Shares (VNQ) and the Vanguard High Dividend Yield Index Fund ETF Shares (VYM) are both among the Top 100 ETFs. VNQ is a Vanguard Real Estate fund and VYM is a Vanguard Large Value fund. So, what’s the difference between VNQ and VYM? And which fund is better?

The expense ratio of VNQ is 0.06 percentage points higher than VYM’s (0.12% vs. 0.06%). VNQ also has a higher exposure to the real estate sector and a higher standard deviation. Overall, VNQ has provided lower returns than VYM over the past ten years.

In this article, we’ll compare VNQ vs. VYM. We’ll look at performance and annual returns, as well as at their industry exposure and portfolio growth. Moreover, I’ll also discuss VNQ’s and VYM’s fund composition, holdings, and risk metrics and examine how these affect their overall returns.

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Summary

VNQVYM
NameVanguard Real Estate Index Fund ETF SharesVanguard High Dividend Yield Index Fund ETF Shares
CategoryReal EstateLarge Value
IssuerVanguardVanguard
AUM77.34B48.5B
Avg. Return11.05%12.20%
Div. Yield2.34%2.79%
Expense Ratio0.12%0.06%

The Vanguard Real Estate Index Fund ETF Shares (VNQ) is a Real Estate fund that is issued by Vanguard. It currently has 77.34B total assets under management and has yielded an average annual return of 11.05% over the past 10 years. The fund has a dividend yield of 2.34% with an expense ratio of 0.12%.

The Vanguard High Dividend Yield Index Fund ETF Shares (VYM) is a Large Value fund that is issued by Vanguard. It currently has 48.5B total assets under management and has yielded an average annual return of 12.20% over the past 10 years. The fund has a dividend yield of 2.79% with an expense ratio of 0.06%.

VNQ’s dividend yield is 0.45% lower than that of VYM (2.34% vs. 2.79%). Also, VNQ yielded on average 1.15% less per year over the past decade (11.05% vs. 12.20%). The expense ratio of VNQ is 0.06 percentage points higher than VYM’s (0.12% vs. 0.06%).

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Fund Composition

Industry Exposure

VNQ vs. VYM - Industry Exposure

VNQVYM
Technology0.0%9.77%
Industrials0.0%10.14%
Energy0.0%7.12%
Communication Services0.0%5.91%
Utilities0.0%7.27%
Healthcare0.0%13.61%
Consumer Defensive0.0%14.13%
Real Estate100.0%0.02%
Financial Services0.0%22.05%
Consumer Cyclical0.0%5.57%
Basic Materials0.0%4.41%

The Vanguard Real Estate Index Fund ETF Shares (VNQ) has the most exposure to the Real Estate sector at 100.0%. This is followed by Technology and Industrials at 0.0% and 0.0% respectively. Consumer Cyclical (0.0%), Financial Services (0.0%), and Consumer Defensive (0.0%) only make up 0.00% of the fund’s total assets.

VNQ’s mid-section with moderate exposure is comprised of Healthcare, Utilities, Communication Services, Energy, and Industrials stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.0%.

The Vanguard High Dividend Yield Index Fund ETF Shares (VYM) has the most exposure to the Financial Services sector at 22.05%. This is followed by Consumer Defensive and Healthcare at 14.13% and 13.61% respectively. Basic Materials (4.41%), Consumer Cyclical (5.57%), and Communication Services (5.91%) only make up 15.89% of the fund’s total assets.

VYM’s mid-section with moderate exposure is comprised of Energy, Utilities, Technology, Industrials, and Healthcare stocks at 7.12%, 7.27%, 9.77%, 10.14%, and 13.61%.

VNQ is 99.98% more exposed to the Real Estate sector than VYM (100.0% vs 0.02%). VNQ’s exposure to Technology and Industrials stocks is 9.77% lower and 10.14% lower respectively (0.0% vs. 9.77% and 0.0% vs. 10.14%). In total, Consumer Cyclical, Financial Services, and Consumer Defensive also make up 41.75% less of the fund’s holdings compared to VYM (0.00% vs. 41.75%).

Holdings

VNQ - Holdings

VNQ HoldingsWeight
Vanguard Real Estate II Index11.62%
American Tower Corp7.24%
Prologis Inc5.33%
Crown Castle International Corp5.01%
Equinix Inc4.3%
Public Storage2.85%
Simon Property Group Inc2.52%
Digital Realty Trust Inc2.49%
SBA Communications Corp2.1%
Welltower Inc2.09%

VNQ’s Top Holdings are Vanguard Real Estate II Index, American Tower Corp, Prologis Inc, Crown Castle International Corp, and Equinix Inc at 11.62%, 7.24%, 5.33%, 5.01%, and 4.3%.

Public Storage (2.85%), Simon Property Group Inc (2.52%), and Digital Realty Trust Inc (2.49%) have a slightly smaller but still significant weight. SBA Communications Corp and Welltower Inc are also represented in the VNQ’s holdings at 2.1% and 2.09%.

VYM - Holdings

VYM HoldingsWeight
JPMorgan Chase & Co3.53%
Johnson & Johnson3.28%
The Home Depot Inc2.59%
Procter & Gamble Co2.48%
Bank of America Corp2.35%
Exxon Mobil Corp2.02%
Comcast Corp Class A1.96%
Verizon Communications Inc1.75%
Intel Corp1.71%
Cisco Systems Inc1.69%

VYM’s Top Holdings are JPMorgan Chase & Co, Johnson & Johnson, The Home Depot Inc, Procter & Gamble Co, and Bank of America Corp at 3.53%, 3.28%, 2.59%, 2.48%, and 2.35%.

Exxon Mobil Corp (2.02%), Comcast Corp Class A (1.96%), and Verizon Communications Inc (1.75%) have a slightly smaller but still significant weight. Intel Corp and Cisco Systems Inc are also represented in the VYM’s holdings at 1.71% and 1.69%.

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Risk Analysis

VNQVYM
Mean Return0.891.04
R-squared44.488.88
Std. Deviation16.1312.69
Alpha2.47-0.7
Beta0.760.88
Sharpe Ratio0.620.93
Treynor Ratio11.913.24

The Vanguard Real Estate Index Fund ETF Shares (VNQ) has a Standard Deviation of 16.13 with a Sharpe Ratio of 0.62 and a Alpha of 2.47. Its R-squared is 44.4 while VNQ’s Beta is 0.76. Furthermore, the fund has a Treynor Ratio of 11.9 and a Mean Return of 0.89.

The Vanguard High Dividend Yield Index Fund ETF Shares (VYM) has a Mean Return of 1.04 with a Treynor Ratio of 13.24 and a Sharpe Ratio of 0.93. Its Standard Deviation is 12.69 while VYM’s Alpha is -0.7. Furthermore, the fund has a R-squared of 88.88 and a Beta of 0.88.

VNQ’s Mean Return is 0.15 points lower than that of VYM and its R-squared is 44.48 points lower. With a Standard Deviation of 16.13, VNQ is slightly more volatile than VYM. The Alpha and Beta of VNQ are 3.17 points higher and 0.12 points lower than VYM’s Alpha and Beta.

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Performance

Annual Returns

VNQ vs. VYM - Annual Returns

YearVNQVYM
2020-4.72%1.14%
201928.91%24.2%
2018-5.95%-5.87%
20174.95%16.42%
20168.53%16.87%
20152.37%0.33%
201430.29%13.47%
20132.42%30.26%
201217.67%12.68%
20118.62%10.5%
201028.44%14.17%

VNQ had its best year in 2014 with an annual return of 30.29%. VNQ’s worst year over the past decade yielded -5.95% and occurred in 2018. In most years the Vanguard Real Estate Index Fund ETF Shares provided moderate returns such as in 2017, 2016, and 2011 where annual returns amounted to 4.95%, 8.53%, and 8.62% respectively.

The year 2013 was the strongest year for VYM, returning 30.26% on an annual basis. The poorest year for VYM in the last ten years was 2018, with a yield of -5.87%. Most years the Vanguard High Dividend Yield Index Fund ETF Shares has given investors modest returns, such as in 2012, 2014, and 2010, when gains were 12.68%, 13.47%, and 14.17% respectively.

Portfolio Growth

VNQ vs. VYM - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
VNQ$10,000$29,50611.05%
VYM$10,000$33,91412.20%

A $10,000 investment in VNQ would have resulted in a final balance of $29,506. This is a profit of $19,506 over 11 years and amounts to a compound annual growth rate (CAGR) of 11.05%.

With a $10,000 investment in VYM, the end total would have been $33,914. This equates to a $23,914 profit over 11 years and a compound annual growth rate (CAGR) of 12.20%.

VNQ’s CAGR is 1.15 percentage points lower than that of VYM and as a result, would have yielded $4,408 less on a $10,000 investment. Thus, VNQ performed worse than VYM by 1.15% annually.


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