VUG vs VYM: A Comprehensive Comparison

When it comes to investing, choosing the right ETF can make all the difference in your portfolio’s performance.

Two popular ETFs that investors often compare are VUG vs VYM. Both are issued by Vanguard, but they have different investment strategies and performance metrics.

In this article, we’ll take a closer look at VUG vs VYM and help you understand which one might be right for your investment goals.

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VUG is an ETF that focuses on growth stocks, while VYM is an ETF that focuses on dividend-paying stocks. If you’re looking for long-term growth potential, VUG might be the better choice for you. On the other hand, if you’re looking for a steady stream of income, VYM might be a better fit. However, there are other factors to consider as well, such as expense ratios and top holdings. In the following sections, we’ll dive deeper into these metrics and help you make an informed decision about which ETF is right for you.

Key Takeaways VUG vs VYM

  • VUG and VYM have different investment strategies and performance metrics.
  • VUG focuses on growth stocks, while VYM focuses on dividend-paying stocks.
  • When choosing between VUG and VYM, it’s important to consider factors such as expense ratios and top holdings.

Understanding VUG vs VYM

When it comes to investing in the stock market, exchange-traded funds (ETFs) have become a popular choice for many investors. Vanguard Growth ETF (VUG) and Vanguard High Dividend Yield ETF (VYM) are two such ETFs that are often compared to one another. Let’s take a closer look at each of these ETFs and what they have to offer.

Vanguard Growth ETF (VUG)

Vanguard Growth ETF (VUG) is an ETF that seeks to track the performance of the CRSP US Large Cap Growth Index. This index includes large-cap growth stocks from the US stock market. As the name suggests, VUG is focused on investing in growth stocks, which are companies that are expected to grow at a faster rate than the overall market. These companies typically reinvest their profits back into the business to fuel growth, rather than paying out dividends to shareholders.

VUG has a market capitalization of over $250 billion and holds over 300 stocks in its portfolio. Some of the top holdings in VUG include Apple, Microsoft, and Amazon. VUG has an expense ratio of 0.04%, which is considered very low compared to other ETFs.

Vanguard High Dividend Yield ETF (VYM)

Vanguard High Dividend Yield ETF (VYM) is an ETF that seeks to track the performance of the FTSE High Dividend Yield Index. This index includes US stocks that are expected to have above-average dividend yields compared to the overall market. VYM is focused on investing in dividend-paying stocks, which are companies that pay out a portion of their profits to shareholders in the form of dividends.

VYM has a market capitalization of over $50 billion and holds over 400 stocks in its portfolio. Some of the top holdings in VYM include Johnson & Johnson, JPMorgan Chase, and Procter & Gamble. VYM has an expense ratio of 0.06%, which is also considered very low compared to other ETFs.

In summary, VUG and VYM are two ETFs that offer different investment strategies. VUG is focused on investing in growth stocks, while VYM is focused on investing in dividend-paying stocks. It is important to consider your investment goals and risk tolerance when deciding which ETF to invest in.

Performance Metrics

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Historical Performance Comparison

When comparing VUG and VYM, it is important to look at their historical performance. VUG has had a higher total return over the past 5 years, with an average annual return of 20.43% compared to VYM’s 13.63% (source: etf.com). However, past performance is not a guarantee of future results. It is important to keep this in mind when making investment decisions.

Analyzing YTD Return

Year-to-date (YTD) return is another important metric to consider when comparing VUG and VYM. As of the current date, VUG has a YTD return of 30.84%, while VYM has a YTD return of 19.54% (source: etf.com). This indicates that VUG has outperformed VYM so far this year. However, it is important to note that YTD return can be volatile and subject to change.

Importance of Alpha and Sharpe Ratio

Alpha and Sharpe ratio are two metrics that can help investors evaluate the risk-adjusted performance of VUG and VYM. Alpha measures the excess return of an investment relative to its benchmark, while Sharpe ratio measures the excess return relative to the risk taken. A positive alpha and a higher Sharpe ratio indicate better risk-adjusted performance.

According to Composer, VUG has a higher alpha and Sharpe ratio compared to VYM. This indicates that VUG has better risk-adjusted performance than VYM. However, it is important to consider other factors such as expense ratio, holdings, and investment objectives when making investment decisions.

Investment Strategies

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When investing in ETFs, it’s important to have a clear investment strategy. With VUG and VYM, you have two options: growth or dividend investing. Let’s take a closer look at these two strategies.

Growth vs. Dividend Investing

VUG is a large growth ETF that seeks to track the performance of the CRSP U.S. Large Cap Growth Index. This means that VUG invests in large-cap companies that are expected to grow at a faster rate than the overall market. On the other hand, VYM is a large value ETF that seeks to track the performance of the FTSE High Dividend Yield Index. This means that VYM invests in large-cap companies that pay out high dividends.

If you’re looking for long-term capital appreciation, growth investing may be the way to go. However, if you’re looking for a steady stream of income, dividend investing may be a better option. Keep in mind that growth stocks can be more volatile than value stocks, so you may see more fluctuations in your returns.

Portfolio Considerations

When deciding between VUG and VYM, it’s important to consider your overall portfolio. If you already have exposure to large-cap growth stocks, adding VUG may result in overexposure to this asset class. On the other hand, if you already have exposure to large-cap value stocks, adding VYM may result in overexposure to this asset class.

It’s also important to consider the holdings of each ETF. As of December 9, 2023, VUG’s top holdings include Apple, Microsoft, and Amazon, while VYM’s top holdings include ExxonMobil, Johnson & Johnson, and Procter & Gamble. If you already hold these companies in your portfolio, adding the corresponding ETF may result in overexposure to these stocks.

In summary, when deciding between VUG and VYM, consider your investment goals and your overall portfolio. If you’re looking for long-term capital appreciation and don’t already have exposure to large-cap growth stocks, VUG may be a good option. If you’re looking for a steady stream of income and don’t already have exposure to large-cap value stocks, VYM may be a good option.

Expense Ratios and Fees

One of the most important considerations when choosing between VUG and VYM is the expense ratio. VYM has a slightly higher expense ratio of 0.06% compared to VUG’s 0.04%. This means that for every $10,000 invested, you will pay $6 more in fees with VYM than with VUG. However, it is important to note that both funds have relatively low expense ratios compared to other similar ETFs.

Another thing to consider when comparing expense ratios is the services and products that each ETF offers. VYM is designed to track the FTSE High Dividend Yield Index, which means it focuses on dividend-paying stocks. On the other hand, VUG tracks the CRSP US Large Cap Growth Index, which focuses on large-cap growth stocks. This means that VYM may be a better choice if you are looking for dividend income, while VUG may be a better choice if you are looking for long-term growth.

It is also important to consider the products that each ETF invests in. VYM invests in a variety of dividend-paying stocks, including large-cap, mid-cap, and small-cap companies. VUG, on the other hand, invests primarily in large-cap growth stocks. This means that VYM may offer more diversification than VUG, which could be important if you are looking to minimize risk in your portfolio.

In summary, when comparing VUG vs VYM, the expense ratio is an important factor to consider. While VYM has a slightly higher expense ratio, it may be a better choice if you are looking for dividend income and diversification. VUG, on the other hand, may be a better choice if you are looking for long-term growth. Ultimately, the choice between VUG and VYM will depend on your individual investment goals and risk tolerance.

Top Holdings and Sector Allocation

VUG’s Major Holdings

Vanguard Growth ETF (VUG) invests primarily in stocks of large-cap companies that have strong growth potential. As of November 29, 2023, VUG’s top 10 holdings accounted for approximately 45% of the ETF’s total net assets. The top three holdings were Apple Inc, Microsoft Corp, and Amazon.com Inc, which together made up over 21% of the portfolio. Other major holdings included Facebook Inc, Alphabet Inc, and Tesla Inc.

In terms of sector allocation, VUG’s largest sector exposure was to Information Technology, which accounted for over 42% of the portfolio. The second-largest sector allocation was to Consumer Discretionary, which made up approximately 20% of the portfolio. Other significant sector allocations included Health Care, Communication Services, and Industrials.

VYM’s Major Holdings

Vanguard High Dividend Yield ETF (VYM) primarily invests in stocks of large-cap companies that have a history of paying dividends and are expected to continue doing so. As of November 29, 2023, VYM’s top 10 holdings accounted for approximately 27% of the ETF’s total net assets. The top three holdings were Exxon Mobil Corp, Johnson & Johnson, and Procter & Gamble Co, which together made up over 12% of the portfolio. Other major holdings included JPMorgan Chase & Co, Verizon Communications Inc, and AT&T Inc.

In terms of sector allocation, VYM’s largest sector exposure was to Health Care, which accounted for over 22% of the portfolio. The second-largest sector allocation was to Consumer Staples, which made up approximately 20% of the portfolio. Other significant sector allocations included Financials, Energy, and Industrials.

Overall, VUG and VYM have different investment objectives and therefore have different major holdings and sector allocations. VUG focuses on growth-oriented companies, while VYM focuses on high dividend-yielding companies. It is important to consider your investment goals and risk tolerance when choosing between these two ETFs.

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