Last year, the Federal Reserve was a thorn in the side of dividend exchange traded funds. This year, that trend has reversed for the better as market participants have come to grips with the fact that the U.S. central bank probably will not be able to raise interest rates any more than two times.
That has been a boon for dividend ETFs, particularly those emphasizing high dividend strategies. There are some venerable options in this space that are not as high yield as their names imply, which can help these funds remain durable regardless of what the Fed is doing.
The Vanguard High Dividend Yield ETF (NYSEArca: VYM) has been solid during some trying times for dividend stocks and ETFs.
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 nearly a quarter 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]
For a “high yield” ETF, VYM’s exposure to the sectors investors view as yield destinations is relatively light. Staples, utilities and telecom combine for 26.1% 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]
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