VYM vs. QUAL: What’s The Difference?

The Vanguard High Dividend Yield Index Fund ETF Shares (VYM) and the iShares MSCI USA Quality Factor ETF (QUAL) are both among the Top 100 ETFs. VYM is a Vanguard Large Value fund and QUAL is a iShares Large Blend fund. So, what’s the difference between VYM and QUAL? And which fund is better?

The expense ratio of VYM is 0.09 percentage points lower than QUAL’s (0.06% vs. 0.15%). VYM also has a higher exposure to the financial services sector and a higher standard deviation. Overall, VYM has provided lower returns than QUAL over the past ten years.

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

Summary

VYM QUAL
Name Vanguard High Dividend Yield Index Fund ETF Shares iShares MSCI USA Quality Factor ETF
Category Large Value Large Blend
Issuer Vanguard iShares
AUM 48.5B 23.93B
Avg. Return 12.20% 13.42%
Div. Yield 2.79% 1.29%
Expense Ratio 0.06% 0.15%

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%.

The iShares MSCI USA Quality Factor ETF (QUAL) is a Large Blend fund that is issued by iShares. It currently has 23.93B total assets under management and has yielded an average annual return of 13.42% over the past 10 years. The fund has a dividend yield of 1.29% with an expense ratio of 0.15%.

VYM’s dividend yield is 1.50% higher than that of QUAL (2.79% vs. 1.29%). Also, VYM yielded on average 1.22% less per year over the past decade (12.20% vs. 13.42%). The expense ratio of VYM is 0.09 percentage points lower than QUAL’s (0.06% vs. 0.15%).

Fund Composition

Industry Exposure

VYM vs. QUAL - Industry Exposure

VYM QUAL
Technology 9.77% 22.52%
Industrials 10.14% 9.22%
Energy 7.12% 2.24%
Communication Services 5.91% 11.44%
Utilities 7.27% 2.41%
Healthcare 13.61% 13.22%
Consumer Defensive 14.13% 8.57%
Real Estate 0.02% 2.72%
Financial Services 22.05% 15.87%
Consumer Cyclical 5.57% 9.43%
Basic Materials 4.41% 2.35%

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%.

The iShares MSCI USA Quality Factor ETF (QUAL) has the most exposure to the Technology sector at 22.52%. This is followed by Financial Services and Healthcare at 15.87% and 13.22% respectively. Basic Materials (2.35%), Utilities (2.41%), and Real Estate (2.72%) only make up 7.48% of the fund’s total assets.

QUAL’s mid-section with moderate exposure is comprised of Consumer Defensive, Industrials, Consumer Cyclical, Communication Services, and Healthcare stocks at 8.57%, 9.22%, 9.43%, 11.44%, and 13.22%.

VYM is 6.18% more exposed to the Financial Services sector than QUAL (22.05% vs 15.87%). VYM’s exposure to Consumer Defensive and Healthcare stocks is 5.56% higher and 0.39% higher respectively (14.13% vs. 8.57% and 13.61% vs. 13.22%). In total, Basic Materials, Consumer Cyclical, and Communication Services also make up 7.33% less of the fund’s holdings compared to QUAL (15.89% vs. 23.22%).

Holdings

VYM - Holdings

VYM Holdings Weight
JPMorgan Chase & Co 3.53%
Johnson & Johnson 3.28%
The Home Depot Inc 2.59%
Procter & Gamble Co 2.48%
Bank of America Corp 2.35%
Exxon Mobil Corp 2.02%
Comcast Corp Class A 1.96%
Verizon Communications Inc 1.75%
Intel Corp 1.71%
Cisco Systems Inc 1.69%

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%.

QUAL - Holdings

QUAL Holdings Weight
Facebook Inc Class A 4.77%
Nike Inc Class B 4.05%
Microsoft Corp 3.54%
Apple Inc 3.52%
Johnson & Johnson 2.99%
BlackRock Inc 2.87%
Target Corp 2.8%
Mastercard Inc Class A 2.72%
NVIDIA Corp 2.71%
Alphabet Inc Class A 2.49%

QUAL’s Top Holdings are Facebook Inc Class A, Nike Inc Class B, Microsoft Corp, Apple Inc, and Johnson & Johnson at 4.77%, 4.05%, 3.54%, 3.52%, and 2.99%.

BlackRock Inc (2.87%), Target Corp (2.8%), and Mastercard Inc Class A (2.72%) have a slightly smaller but still significant weight. NVIDIA Corp and Alphabet Inc Class A are also represented in the QUAL’s holdings at 2.71% and 2.49%.

Risk Analysis

VYM QUAL
Mean Return 1.04 0
R-squared 88.88 0
Std. Deviation 12.69 0
Alpha -0.7 0
Beta 0.88 0
Sharpe Ratio 0.93 0
Treynor Ratio 13.24 0

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

The iShares MSCI USA Quality Factor ETF (QUAL) has a Beta of 0 with a Treynor Ratio of 0 and a Mean Return of 0. Its Sharpe Ratio is 0 while QUAL’s Alpha is 0. Furthermore, the fund has a R-squared of 0 and a Standard Deviation of 0.

VYM’s Mean Return is 1.04 points higher than that of QUAL and its R-squared is 88.88 points higher. With a Standard Deviation of 12.69, VYM is slightly more volatile than QUAL. The Alpha and Beta of VYM are 0.70 points lower and 0.88 points higher than QUAL’s Alpha and Beta.

Performance

Annual Returns

VYM vs. QUAL - Annual Returns

Year VYM QUAL
2020 1.14% 16.96%
2019 24.2% 34.14%
2018 -5.87% -5.77%
2017 16.42% 22.26%
2016 16.87% 9.18%
2015 0.33% 5.56%
2014 13.47% 11.62%
2013 30.26% 0.0%
2012 12.68% 0.0%
2011 10.5% 0.0%
2010 14.17% 0.0%

VYM had its best year in 2013 with an annual return of 30.26%. VYM’s worst year over the past decade yielded -5.87% and occurred in 2018. In most years the Vanguard High Dividend Yield Index Fund ETF Shares provided moderate returns such as in 2012, 2014, and 2010 where annual returns amounted to 12.68%, 13.47%, and 14.17% respectively.

The year 2019 was the strongest year for QUAL, returning 34.14% on an annual basis. The poorest year for QUAL in the last ten years was 2018, with a yield of -5.77%. Most years the iShares MSCI USA Quality Factor ETF has given investors modest returns, such as in 2010, 2015, and 2016, when gains were 0.0%, 5.56%, and 9.18% respectively.

Portfolio Growth

VYM vs. QUAL - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VYM $10,000 $18,315 12.20%
QUAL $10,000 $23,251 13.42%

A $10,000 investment in VYM would have resulted in a final balance of $18,315. This is a profit of $8,315 over 7 years and amounts to a compound annual growth rate (CAGR) of 12.20%.

With a $10,000 investment in QUAL, the end total would have been $23,251. This equates to a $13,251 profit over 7 years and a compound annual growth rate (CAGR) of 13.42%.

VYM’s CAGR is 1.22 percentage points lower than that of QUAL and as a result, would have yielded $4,936 less on a $10,000 investment. Thus, VYM performed worse than QUAL by 1.22% annually.


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