VYM vs. VOO: Should You Go For Vanguard’s Dividends or Growth and Value ETF?

The Vanguard High Dividend Yield ETF (VYM) and Vanguard S&P 500 ETF (VOO) are both popular in U.S. markets. They are both issued and managed by Vanguard, a household name in the investment management landscape with tons of top-quality funds to its name. 

Both funds represent different market sides – VYM is a dividend ETF while VOO tilts towards growth and value. In addition to this simple variation, VYM and VOO have several other features and facts going on for them. 

This article will discuss both funds at length, focusing on important talking points like composition, holdings, investment strategy, past performance, volatility, and more. From experience, every Vanguard fund comparison is interesting, and this will not be an exception. 

So, let’s get to it! 

Key Takeaways

Before we dive into the juiciest parts, here are the key takeaways from this article;

  • VYM and VOO are Vanguard Exchange Traded Funds (ETFs) focusing only on domestic stocks. 
  • VYM is a dividend ETF, while VOO is a growth and value ETF.
  • VYM tracks the FTSE High Dividend Yield Index, while VOO tracks the S&P 500 Index. 
  • VOO offers more diversification based on its holdings and sectors, while VYM is big on dividends and low on diversification.  
  • Both funds have done well since their launch, but VOO has been the better performer in the bigger picture.
  • VYM’s assets under management are worth over $268 billion, spread across 508 holdings.
  • VOO’s assets under management are worth over $43 billion, all spread across 413 holdings. 
  • VOO is cheaper, with an expense ratio of 0.03% compared to VYM’s 0.06%.

VYM vs. VOO: At A Glance

The Vanguard High Dividend Yield ETF (VYM) and Vanguard S&P 500 ETF (VOO) are two stock funds from the stables of Vanguard. Both are passively-managed large-cap funds offering access to different parts of the equity market. 

VYM vs. VOO: portfoliovisualizer.com
VYM vs. VOO: portfoliovisualizer.com

Vanguard High Dividend Yield ETF (VYM)

Launched on November 10, 2006, VYM is a sound ETF that exposes investors’ portfolios to the dividends side of the market. It comprises only domestic stocks of large value, offering a convenient way to track the performance of stocks that are expected to record above-average dividend yields.  In summary, VYM is great for investors seeking exposure to U.S. large-cap dividend value stocks. 

Vanguard S&P 500 ETF (VOO)

VOO was launched on September 7, 2010 – about four years after VYM’s inception. Its portfolio comprises only large blend domestic stocks, all passively managed in the index management style. Considering the fund does not focus on dividends, it is more suitable for long-term investors who prioritize the growth of their capital. In summary, VOO offers investors good exposure to both value and growth U.S. large cap stocks. 

Let’s proceed to extensively discuss the differences between the two funds. 

VYM vs. VOO: Differences in Composition

Investment Methodologies

Both VYM and VOO adopt different investment strategies despite being under the same management. 

VYM is a high dividend yield ETF designed to track the performance of the FTSE High Dividend Yield Index. According to Vanguard, this index “measures the investment return of common stock of companies characterized by high dividend yields.”  The custom index essentially invests in high dividend stocks or stocks whose dividend yields are above average. Since the large cap equities in this fund are chosen based on their estimated dividend yields, an annual rebalancing helps keep the portfolio turnover low. This investment methodology is great for passive investors. 

On the other hand, VOO invests in stocks in the S&P 500 Index. It is designed to closely monitor the index’s return, i.e., the overall U.S. stock market returns. Vanguard says the fund “offers high potential for investment growth; share value rises and falls more sharply than that of funds holding bonds.”  Unlike VYM, VOO combines both growth and value large cap stocks in the United States, including REITs. This Vanguard ETF is an excellent choice for investors who prioritize diversity across sectors and fair market capitalization-based weighting. 

Portfolio Size, Largest Sectors, and Top Holdings

VOO is the bigger fund in terms of portfolio size. It has 503 holdings in its portfolio, 60 stocks more than VYM’s 443 holdings. The same trend is observed regarding the funds’ total net assets. VOO currently has over $700 billion worth of assets under its management, compared to just $55.6 billion in VYM’s coffers.  But which sectors of the market are these stocks picked from? 

The top sectors covered in VOO’s portfolio are Information Technology, Healthcare, Financials, Consumer Discretionary, and Communication Services. In contrast, VYM’s top five largest sectors are Financials, Healthcare, Consumer Staples, Industrials, and Energy.    

Here is a summary of the top 5 sectors of both funds:

1.Financials – 19.40%  Information Technology – 26.80%
2.Healthcare – 15.50%  Healthcare – 15.20%  
3.Consumer Staples – 13.40% Financials – 10.80%
4.Industrials – 9.90%  Consumer Discretionary – 10.50%
5.Energy – 9.20%Communication Services – 8.90%

The top holdings in each case differ considerably, but the percentages of total net assets in both funds are close. The ten largest holdings in VYM account for 23.40% of the entire portfolio but 28.10% of VOO’s entire portfolio. The largest investments in both funds are in different companies. That explains why the ten largest holdings in each case were clearly dissimilar. 

Below is a comparison of the ten largest holdings in both funds: 

1.Johnson & Johnson – 3.84%Apple Inc. – 6.52%
2.Exxon Mobil Corp. – 2.69%Microsoft Corp. – 5.96%
3.Procter & Gamble Co. – 2.56%Amazon.com Inc. – 2.88%
4.JPMorgan Chase & Co. – 2.45%Alphabet Inc. Class A – 2.03%
5.Pfizer Inc. – 2.21%Alphabet Inc. Class C – 1.87%
6.Chevron Corp. – 2.12%Tesla Inc. – 1.75%
7.Home Depot Inc. – 2.11%Berkshire Hathaway Inc. Class B – 1.53%
8.Eli Lilly & Co. – 2.04%UnitedHealth Group Inc. – 1.49%
9.AbbVie Inc. – 2.02%Johnson & Johnson – 1.45%
10.Coca-Cola Co. – 1.83%NVIDIA Corp. – 1.18%

VYM vs. VOO: Performance and Returns

Performance is key when comparing two ETFs. 

VYM vs. VOO: Performance Summary, Source: portfoliovisualizer.com
VYM vs. VOO: Performance Summary, Source: portfoliovisualizer.com

Average Annual Returns

VYM has returned 7.26%, while VOO has returned 12.80% since their inceptions. VOO has fetched investors more returns in the last ten years, recording 12.42 compared to VYM’s 10.39. The trend is the same when we compare the last three and five years. VOO returned 10.17% and 10.81% in the last five and three years, respectively, compared to VYM’s 7.80% and 7.98%. Note that all numbers are after taxes on distributions. 

Portfolio Growth 

So, if you invested $10,000 in both VYM and VOO in September 2010, your capital would have recorded a return of 281.45% and 323.68%, respectively. These translate to worths of $38,145 and $43,268, respectively, for VYM and VOO.   VYM currently has a higher dividend yield (3.19%) than VOO (1.36%). But that is understandable, considering VYM is a dividends ETF. 

Both funds have done well since their launch, but VOO has been the better performer in the bigger picture. Adding VOO to your portfolio would be you just following a proven path of building wealth by playing the long-term game. 

VYM vs. VOO: Risk and Volatility

VYM vs. VOO: Drawdowns, Source: portfoliovisualizer.com
VYM vs. VOO: Drawdowns, Source: portfoliovisualizer.com

The volatility comparison of both funds, leaves little to separate them. The volatility of VYM currently stands at 12.25%, which is relatively close to VOO’s 13.48%. Generally, both funds are considered not volatile, and investors would not be accruing any outrageous risk by adding them to their portfolios.  

VYM vs. VOO: Fees and Tax Efficiency

Let’s look at the expenses associated with both funds. 

Expense Ratio

VYM’s expense ratio is 0.06%, 100% higher than VOO’s 0.03%. Both funds are relatively cheap to maintain, but you will be saving even more costs by choosing VOO with its 0.03% expense ratio. Perhaps some investors are attracted by the potential high dividends VYM offers and might see this as sufficient compensation for the slightly higher expenses. 

Minimum Investment 

There are no strict minimum investment requirements for VYM and VOO. You can simply buy at their current market prices and add as much as you can afford to your portfolio. 

VYM vs. VOO: ESG Ratings and Impacts

The last talking point before we round up is the ESG ratings of both funds. These ratings measure how well the funds will thrive in the face of environmental, social, and governmental risks and opportunities. 

The ESG score of VOO is 8.23, and that of VYM is 8.27. Both funds are rated AA and above the 70th percentage within the global fund rankings. 

Final Verdict

Choosing between the Vanguard High Dividend Yield ETF (VYM) and Vanguard S&P 500 ETF (VOO) will always be a close call, especially for new investors open to everything and anything. However, both funds have different investment goals and adopt varying strategies to achieve these goals.

Which is better: High Dividend Yield Stocks vs. Growth and Value Stocks?

If you prioritize a fund that offers an efficient exposure to large-cap allocation, VOO is the way to go. It offers access to two strategic sides of the market – growth stocks and value stocks. You can also save more in costs by choosing VOO, thanks to its lower expense ratio. 

Conversely, investors who are all about the dividend income or dividend yield are better off with VYM. This choice would come with even better rewards in form of dividend payment for anyone who could play the long-term game, both as a professional or beginner. 

Finally, every bit of information this article provides is for educational purposes only. They may not be considered or taken as financial or investment advice. I recommend speaking to registered investment advisers for guidance. 

Feel free to check out more interesting index fund comparisons on our website.  Good luck!

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