When it comes to investing in dividend ETFs, two of the most popular options are Vanguard High Dividend Yield ETF (VYM) and SPDR S&P Dividend ETF (SDY).
While both ETFs focus on dividend-paying stocks, they have distinct differences in their portfolio composition, financial performance, and risk and volatility metrics.
Understanding these differences is crucial for investors looking to make an informed decision between VYM vs SDY.
VYM and SDY have different approaches to selecting and weighting their holdings. VYM invests in stocks with high dividend yields, while SDY invests in stocks with a history of increasing dividends. This difference in approach is reflected in their portfolio composition, with VYM having a higher concentration in the consumer goods and healthcare sectors, and SDY having a higher concentration in the financial and industrial sectors. Additionally, VYM has a lower expense ratio than SDY, which may be a factor for cost-conscious investors.
When analyzing the financial performance of VYM and SDY, both ETFs have provided positive returns over the long term. However, VYM has outperformed SDY in terms of total returns over the past ten years. On the other hand, SDY has had more consistent dividend growth and a higher dividend yield than VYM. Investors should consider these factors, along with their investment goals and risk tolerance, when deciding between VYM and SDY.
Key Takeaways VYM vs SDY
- VYM and SDY have different approaches to selecting and weighting their holdings, which is reflected in their portfolio composition.
- VYM has outperformed SDY in terms of total returns over the past ten years, while SDY has had more consistent dividend growth and a higher dividend yield than VYM.
- Investors should consider their investment goals and risk tolerance, along with the financial performance and portfolio composition of VYM and SDY, when deciding between these dividend ETFs.
Understanding VYM vs SDY
Fund Issuers and History
VYM and SDY are both exchange-traded funds (ETFs) that focus on dividend-paying stocks. VYM is issued by Vanguard, one of the largest and most well-known investment management companies in the world. SDY is issued by State Street Global Advisors, the investment management division of State Street Corporation.
Vanguard High Dividend Yield ETF (VYM) was launched in November 2006 and has since grown to become one of the largest dividend ETFs in the market. It tracks the performance of the FTSE High Dividend Yield Index, which includes large-cap U.S. stocks with above-average dividend yields.
SPDR S&P Dividend ETF (SDY), on the other hand, was launched in November 2005 and tracks the performance of the S&P High Yield Dividend Aristocrats Index. This index includes companies that have increased their dividends for at least 20 consecutive years, making it a popular choice for investors seeking steady income.
Investment Strategies
Both VYM and SDY have similar investment strategies, but there are some key differences. VYM aims to provide exposure to high-quality, large-cap U.S. stocks with above-average dividend yields. The fund has a relatively low expense ratio of 0.06% and holds over 400 stocks, with top holdings including Microsoft, Johnson & Johnson, and Procter & Gamble.
SDY, on the other hand, focuses on companies that have a history of increasing their dividends for at least 25 consecutive years. The fund has a slightly higher expense ratio of 0.35% and holds around 100 stocks, with top holdings including AbbVie, AT&T, and Exxon Mobil.
Both funds offer investors exposure to dividend-paying stocks, which can provide a steady stream of income and potentially reduce overall portfolio volatility. However, it’s important to note that dividend stocks may not always outperform the broader market, and investors should carefully consider their investment goals and risk tolerance before investing in either VYM or SDY.
In summary, VYM and SDY are both popular ETFs that offer exposure to dividend-paying stocks. While VYM focuses on high-quality, large-cap U.S. stocks with above-average dividend yields, SDY focuses on companies with a history of increasing their dividends for at least 25 consecutive years. Investors should carefully consider their investment goals and risk tolerance before investing in either fund.
Financial Performance Analysis VYM vs SDY
When it comes to investing in ETFs, financial performance is a key factor to consider. In this section, we will analyze the financial performance of VYM and SDY, comparing their historical returns, dividend yield, expense ratios, and fees.
Historical Returns
Historical returns are a crucial factor to consider when investing in ETFs. Over the past ten years, VYM has provided 0.04% higher returns than SDY. This difference may seem small, but it could make a significant difference in the long run.
Dividend Yield Comparison
Dividend yield is another important factor to consider when investing in ETFs. VYM has a higher dividend yield of 3.12% compared to SDY’s dividend yield of 2.63%. This means that VYM investors can expect higher returns from dividend payments.
Expense Ratios and Fees
Expense ratios and fees are also important to consider when investing in ETFs. VYM has a lower expense ratio of 0.06% compared to SDY’s expense ratio of 0.35%. This means that VYM investors will pay less in fees compared to SDY investors.
In summary, when comparing VYM and SDY, VYM has higher historical returns and a higher dividend yield, while SDY has a higher expense ratio. It is important to consider all of these factors when making an investment decision.
Portfolio Composition
Sector Allocation
When it comes to sector allocation, both VYM and SDY have a significant overlap. Both ETFs have a large allocation towards Consumer Defensive, Financial Services, and Healthcare sectors. However, there are some differences in sector allocation between the two ETFs.
VYM has a higher allocation towards Consumer Defensive and Technology sectors. On the other hand, SDY has a higher allocation towards Real Estate and Energy sectors. If you are looking for exposure to the Technology sector, VYM may be a better choice for you. However, if you want exposure to Real Estate and Energy sectors, SDY may be a better choice.
Top Holdings
Both VYM and SDY have a portfolio of 100+ stocks, but there is a significant difference in their top holdings. VYM’s top holdings are dominated by large-cap stocks such as Johnson & Johnson, Procter & Gamble, and Visa Inc. On the other hand, SDY’s top holdings are dominated by mid-cap stocks such as International Business Machines, T. Rowe Price Group, and Realty Income Corp.
If you prefer large-cap stocks, VYM may be a better choice for you. However, if you prefer mid-cap stocks, SDY may be a better choice. It’s important to note that both ETFs have a well-diversified portfolio, and no single stock represents more than 2.5% of the total portfolio.
In summary, both VYM and SDY have a well-diversified portfolio, and their sector allocation and top holdings are different. It’s important to consider your investment goals and risk tolerance before choosing one over the other.
Risk and Volatility Metrics
Standard Deviation and Beta
When comparing VYM and SDY, it is important to consider their standard deviation and beta values. Standard deviation measures the volatility of a fund’s returns, while beta measures the fund’s sensitivity to market movements. According to ETF Database, VYM has a lower standard deviation (13.21%) compared to SDY (15.32%). This suggests that VYM is less volatile than SDY.
On the other hand, SDY has a higher beta (0.93) compared to VYM (0.86), as reported by PortfoliosLab. This means that SDY is more sensitive to market movements compared to VYM. It is important to note that a beta of 1 indicates that the fund moves in line with the market, while a beta greater than 1 indicates that the fund is more volatile than the market.
Sharpe Ratio
Another important metric to consider when comparing VYM and SDY is the Sharpe ratio. The Sharpe ratio measures the risk-adjusted return of a fund and is calculated by dividing the fund’s excess return over the risk-free rate by its standard deviation. A higher Sharpe ratio indicates a better risk-adjusted return.
According to ETF.com, VYM has a higher Sharpe ratio (0.79) compared to SDY (0.61). This suggests that VYM has a better risk-adjusted return compared to SDY.
Overall, when considering risk and volatility metrics, VYM appears to be less volatile and have a better risk-adjusted return compared to SDY. However, it is important to consider other factors such as expense ratios, dividend yields, and holdings before making any investment decisions.
Strategic Considerations for Investors
When deciding between VYM and SDY, there are a few strategic considerations that investors should keep in mind. These considerations include your investment horizon, investor profile suitability, and diversification benefits.
Investment Horizon
Your investment horizon is an important factor to consider when deciding between VYM and SDY. If you have a long investment horizon, VYM may be a better choice for you. This is because VYM tracks the performance of high dividend yielding stocks, which can lead to portfolio growth over time. On the other hand, SDY tracks the performance of companies that have consistently increased their dividends over time. This means that SDY may be a better choice for investors with a shorter investment horizon who are looking for stable, consistent returns.
Investor Profile Suitability
Your investor profile is another important factor to consider when deciding between VYM and SDY. If you are a conservative investor who is looking for stable, consistent returns, SDY may be a better choice for you. This is because SDY tracks the performance of companies that have consistently increased their dividends over time, which can lead to stable returns. On the other hand, if you are a more aggressive investor who is looking for higher returns, VYM may be a better choice for you. This is because VYM tracks the performance of high dividend yielding stocks, which can lead to higher returns over time.
Diversification Benefits
Diversification is an important consideration when building a portfolio. Both VYM and SDY provide diversification benefits, but in different ways. VYM provides diversification by tracking the performance of high dividend yielding stocks across different sectors. This means that VYM can provide exposure to different sectors and industries, which can help reduce risk. On the other hand, SDY provides diversification by tracking the performance of companies that have consistently increased their dividends over time. This means that SDY can provide exposure to companies across different sectors and industries, which can also help reduce risk.
In conclusion, when deciding between VYM and SDY, it is important to consider your investment horizon, investor profile suitability, and diversification benefits. By taking these factors into account, you can make a more informed decision about which ETF is right for you.
