VYM vs. VOO & VTI from Vanguard – Dividends vs. Broad Market

VYM is Vanguard’s dividend-yield-oriented ETF. VOO and VTI are their broad market index funds for the S&P 500 and total U.S. stock market. Let’s compare them.

VYM vs. VOO and VTI – Methodology and Composition

We can compare VYM to both VOO and VTI at the same time, as both VOO and VTI capture “the market” in the U.S. and perform nearly identically; VOO is the S&P 500 and VTI is the total U.S. stock market. I delved into comparing VOO and VTI here.

VYM, established in 2006, is a narrower segment of the market. It is the Vanguard High Dividend Yield ETF. It has about 400 holdings. As the name suggests, the fund holds large-cap U.S. stocks with a high dividend yield. Specifically, the fund seeks to track the FTSE High Dividend Yield Index.

The index is market cap weighted, and attempts to forecast dividend yield. REITs are excluded. Stocks forecasted to have no dividend yield or that haven’t paid a dividend in the past 12 months are also excluded. As such, VYM is entirely exposed to large cap value; it has no exposure to large cap growth stocks, as they tend to not pay a dividend.

Sector weightings are naturally very different for VYM than for VOO or VTI. Thus, VYM alone would not be sufficient as a core holding for a diversified investment portfolio, and should probably only be used to tilt, or overweight, high dividend stocks in one’s portfolio. This may be attractive for dividend investors; I’m not a dividend investor, but I did design a dividend-focused portfolio that incorporates VYM.

VOO is the Vanguard S&P 500 ETF. Established in 2010, it is one of the most popular ETFs out there. The fund seeks to track the S&P 500 Index, holding over 500 U.S. large-cap stocks, weighted by market capitalization. This index is considered a barometer for the U.S. stock market. VOO is roughly half large cap value and half large cap growth. As such, it is more diversified than VYM.

VTI is the Vanguard Total Stock Market ETF. It was established in 2001. VTI provides similar broad exposure to the U.S. stock market, but also includes small- and mid-cap stocks. Specifically, VTI is about 82% large cap stocks, 12% mid cap stocks, and 6% small cap stocks.

The fund seeks to track the CRSP US Total Market Index. This ETF has over 3,500 holdings. Consequently, VTI can be considered more diversified than VOO.

All three of these funds only hold stocks in the United States. Both VOO and VTI include REITs, while VYM does not.

VYM vs. VOO and VTI – Historical Performance

Going back to 2006 when VYM was incepted, VOO and VTI have beaten it handily:

In fairness, we should expect this result, as VYM inherently has much more exposure to the Value factor, and the Value premium has suffered over the past decade.

VYM vs. VOO and VTI – AUM and Fees

Though all three of these funds are highly liquid and very popular, Vanguard’s VOO and VTI are much more popular than VYM with over $550 billion and $900 billion in assets, respectively, compared to about $33 billion for VYM.

VYM has an expense ratio of 0.06%, while both VOO and VTI are cheaper with an expense ratio of 0.03%.

Conclusion

Investors seeking broad, diversified exposure to the U.S. stock market should use VOO or VTI as a core holding. VYM only looks at large-cap, high-dividend-yield stocks in the U.S. and is thus likely better suited as a dividend tilt for those looking to use dividend yield as income or those who want a suboptimal Value factor tilt.

VOO and VTI have outperformed VYM going back to VYM’s inception in 2006, as VYM has no exposure to Growth, which has beaten Value over that time period, highlighting the importance of diversification across equity styles.

VOO and VTI are also more popular and slightly cheaper than VYM.

Conveniently, all these funds should be available at any major broker, including M1 Finance, which is the one I’m usually suggesting around here.

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Disclosure: I am long VOO.

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.