Dividend ETF Fee Cut: Popular Vanguard ETF Gets Even Cheaper
February 25th 2013 at 1:51pm by John Spence
Vanguard has slashed the expense ratio on one of the largest dividend ETFs that invests in U.S. stocks. Dividend-themed ETFs have been extremely popular with yield-seeking investors and Vanguard’s move could force other providers to follow suit.
Vanguard in a press release said it has reduced the management fee for Vanguard High Dividend Yield Index ETF (NYSEArca: VYM) to 0.10% from 0.13%. VYM is the ETF share class of Vanguard High Dividend Yield Index Fund, which saw its expense ratio lowered to 0.20% from 0.25%.
The ETF tracks a dividend benchmark maintained by FTSE, which worked with Vanguard to develop the index. It targets U.S. stocks with above-average dividend yields, and excludes real estate investment trusts, or REITs.
VYM holds $5 billion in assets and has a 30-day SEC yield of 3.15%, according to Vanguard. [Dividend ETFs: Investors Want Yield]
Morningstar analyst Samuel Lee says VYM has a lower yield than some other dividend ETFs that weight individual stocks by dividends. The Vanguard ETF weights companies by market cap “so mature, higher-quality firms like Exxon Mobil (NYSE: XOM) and Microsoft (NasdaqGS: MSFT) dominate the roost,” he writes in a report on the ETF.
“This may disappoint yield-seekers, but it lends the fund a more cautious posture than many other dividend funds. It would serve ably as a core holding,” Lee added.
For the trailing 12 months, the ETF has posted a total return of 16.3%, compared with 14.2% for the S&P 500.
VYM was already among the cheapest dividend ETFs even before Vanguard’s fee cut. The market-cap-weighting approach also tends to keep turnover and taxes low.
“The fund’s methodology is elegant and its implementation low-cost,” Lee concludes, although investors should remember the fund “does not provide the high yield of some other dividend-focused ETFs that ignore market price or capitalization to invest in solely the highest-yielding stocks.”
Vanguard High Dividend Yield Index ETF
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