Amid fears that the Federal Reserve will soon raise interest rates, 2015 has been a tough year for some of the largest dividend exchange traded funds. Of the four largest dividend ETFs by assets, only one has managed to add new money this year while the other three have bled assets.
That honor goes to the Vanguard High Dividend Yield ETF (NYSEArca: VYM), which has seen 2015 inflows of $682 million.
VYM offers additional leverage to the shareholder rewards theme via its 12.4% weight to the financial services sector. For example, Dow component J.P. Morgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC) combine for 5.8% of VYM’s weight. J.P. Morgan Chase and Wells Fargo were among the large banks that passed the Federal Reserve’s recent stress tests, which allows the banks to boost buybacks and dividends. [Bank on These Bank ETFs]
“Despite its ‘high dividend’ name, VYM has a high trailing 3- and 5-year dividend growth rate relative to many ETF peers with an explicit dividend growth strategy,” reports Aparna Narayanan for Investor’s Business Daily.
It can be said that VYM belies its high-yield implication because the ETF’s exposure to the sectors investors view as yield destinations is relatively light. Staples, utilities and telecom combine for 26.8% of the ETF’s weight with over half that coming from staples names. That is to say that with its relatively light combined allocation to the telecom and utilities sectors, VYM is not as sensitive to rising interest rates as some utilities-heavy dividend ETFs are. [The Right Dividend ETFs for Rising Rates Protection]
In addition the 14.8% weight to financial services names, VYM hits the dividend growth theme with an almost 13% weight to technology stocks, another group chock full of impressive dividend growers.That’s a bit of rarity among dividend-focused funds, as most rules-based dividend portfolios insist on a dividend history of at least 10 years.