Vanguard High Dividend Yield ETF returned 17% YTD, outpacing the S&P 500's 13%, as a 7-point P/E gap rewards mature dividend payers over the AI megacap complex.
The Vanguard High Dividend Yield ETF (VYM) has returned 17% year-to-date through August 19, topping the S&P 500's 13% gain, according to fund data. The $94.6 billion fund trades at a forward price-to-earnings multiple near 16, while the index sits at roughly 23. That 7-point gap is the mechanism behind the outperformance.
VYM tracks the FTSE High Dividend Yield Index, which sorts stocks by yield and takes the top half. The mechanical screen excludes companies with below-average payouts, cutting most megacap AI names before the portfolio is weighted. The result is a portfolio of mature, cash-generative businesses that tend to trade at the cheapest valuations. The fund's largest holdings include Exxon (XOM), Johnson & Johnson (JNJ), AbbVie (ABBV), Chevron (CVX), JPMorgan (JPM), and Coca-Cola (KO). JPMorgan carries an Alpha Score of 65, Moderate, and Coca-Cola scores 65, also Moderate. Broadcom (AVGO) is the only large tech exception at 8% of assets.
The valuation discount reflects how much index weight has shifted into a small group of AI leaders whose multiples depend on defending future growth. VYM wins when the cheapest half of large-cap America beats the most expensive quarter. That rotation began in 2022 and has largely held.
Over five years, VYM returned 79% against the S&P 500's 73%, a narrower margin. Over ten years, the fund trails 207% to 252%, a deficit driven by zero exposure to Nvidia, minimal Microsoft, and no Meta. Those gaps are structural: a yield screen will always lag an index that leans into growth names during a bull cycle.
Vanguard cut the expense ratio to 4 basis points in February, making the fund effectively cost-free for long-term holders. The trailing-12-month distribution of $3.63 on a $165 share adds cash flow, though the yield sits below the 10-year Treasury at 5%.
The discount VYM trades at is earned: the fund will trail if AI-led growth resumes dominating. It is an opportunity if the value rotation persists. The fund's prospectus states the index rebalances semiannually, so the composition shifts with yield changes, not market calls. VYM fits an investor who wants US large-cap exposure but chooses the cheaper half of the market. It does not fit anyone betting on continued AI capex-driven returns.
Prepared with AlphaScala editorial tooling from the source reporting linked above. Indexable analysis may include a cited Alpha Score value. Publishing checks screen each story before release. Educational coverage, not personalized advice.