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
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.