The Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) and the Vanguard High Dividend Yield ETF (VYM) are two popular dividend-oriented ETFs. Let’s compare them.
First, I don’t get excited about dividends. But I know that income investors often like to use dividends as current income, particularly in retirement, and thus seek out high-dividend-yield funds. Others just irrationally prefer dividend-paying stocks. In any case, these two high-yield funds are very popular and take a somewhat different approach. Here we’ll review these dividend ETFs and explore the differences between them.
In a hurry? Here are the highlights:
- SPHD and VYM are two popular high-dividend-yield ETFs from Invesco and Vanguard, respectively.
- SPHD launched in 2012. VYM launched in 2006.
- SPHD commands a higher fee of 0.30%, compared to 0.06% for VYM.
- Both are very popular and have significant AUM, but VYM is more popular than SPHD, which makes sense since it’s older.
- SPHD looks for low-volatility companies that pay a high dividend.
- VYM is comprised of higher-than-average-dividend-yield stocks, excluding REITs. It doesn’t care about volatility.
- Since SPHD’s inception in 2012, it has delivered a higher return than VYM with roughly the same volatility.
- As we’d probably expect, SPHD tends to deliver comparatively more exposure to the Profitability and Investment risk factors.
- VYM has outperformed SPHD historically, with lower volatility and a smaller max drawdown.
Contents
SPHD vs. VYM – Methodology
SPHD is the Invesco S&P 500 High Dividend Low Volatility ETF. It tracks the S&P 500 Low Volatility High Dividend Index, which is rebalanced semi-annually. As the name suggests, this index takes the highest dividend payers from the S&P 500 Index and then selects the lowest volatility companies among those, resulting in a basket of about 50 companies that doesn’t really represent the broader market. Constituent stocks are weighted based on their 12 month trailing dividend yield. Sectors are capped at 25%.
The Vanguard High Dividend Yield ETF (VYM) seeks to track the FTSE® High Dividend Yield Index. Its selection methodology is pretty simple. Stocks are taken from the FTSE® All-World Index, excluding REITs, and are ranked by forecasted dividend yield, from which the top half are selected for inclusion.
Unlike SPHD, VYM doesn’t care about volatility. Because of this, note that SPHD only has about 50 holdings while VYM has a little over 400. This means SPHD poses comparatively more concentration risk. Its sector weightings aren’t going to look like the market, and indeed it has a lower correlation to the market than VYM.
VYM has slightly more loading on Value but much lower exposure to Profitability and Investment. This makes sense. SPHD is looking for low-volatility stocks with a high dividend. These are going to be companies with more robust profitability and conservative investment policies. SPHD also tilts smaller (Size factor) than VYM.
SPHD has slightly higher ESG/SRI scores than VYM, if you care about that sort of thing.
SPHD’s concentration allows it to deliver a higher dividend yield, which may be the most important factor for a dividend investor. At the time of writing, its yield is 4.25%, compared to 2.75% for VYM.
SPHD vs. VYM – Composition
| SPHD | VYM | |
| Basic Materials | 7.50% | 4.90% |
| Consumer Staples | 17.20% | 13.70% |
| Consumer Discretionary | 10.00% | 8.70% |
| Financials | 13.10% | 23.00% |
| Healthcare | 5.20% | 12.60% |
| Industrials | 3.30% | 9.20% |
| Energy | 9.30% | 7.00% |
| Technology | 8.60% | 10.00% |
| Telecommmunications | 4.30% | 3.30% |
| Utilities | 18.30% | 7.30% |
Notice how SPHD overweights defensive sectors like Materials, Consumer Staples, and Utilities. These sectors are known for higher dividends and low volatility.
SPHD vs. VYM – Performance Backtest
Here’s a performance backtest of SPHD and VYM two funds going back to SPHD’s inception in 2012:
SPHD and VYM were pretty close until the March 2020 crash, during which SPHD fell further and took longer to recover compared to VYM. For the year 2020, SPHD had a negative return of -10.35% while VYM returned a positive 1.14%.
VYM has outperformed SPHD over the total time period, ironically with lower volatility by about 10% and a smaller max drawdown. Specifically, VYM outperformed SPHD in 5 out of the past 9 years. As is the case with SPLV, a basket of low-volatility stocks does not necessarily result in the basket as a whole having low volatility.
We can also see that market correlation I mentioned: 0.83 for SPHD and 0.94 for VYM.
SPHD vs. VYM – Conclusion
I created a dividend-focused portfolio that includes VYM that can be found here. I excluded SPHD because its higher fee didn’t seem worth it for the exposure it provides. Pure yield chasers will likely still prefer SPHD for its higher yield. SCHD actually delivers pretty similar factor exposure at a much lower fee. I compared SCHD and VYM in a separate post here.
Conveniently, both of these funds should be available at any major broker, including M1 Finance, which is the one I’m usually suggesting around here.
Do you hold any of these ETFs in your portfolio? Let me know in the comments.
Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.
Leave a Reply