Launched on 04/21/2006, the Vanguard Dividend Appreciation ETF (VIG) is a smart beta exchange traded fund offering broad exposure to the Style Box - Large Cap Blend category of the market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
The fund is sponsored by Vanguard. It has amassed assets over $64.63 billion, making it one of the largest ETFs in the Style Box - Large Cap Blend. VIG seeks to match the performance of the NASDAQ US Dividend Achievers Select Index before fees and expenses.
The S&P U.S. Dividend Growers Index consists of common stocks of companies that have a record of increasing dividends over time.
Cost & Other Expenses
For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
Annual operating expenses for VIG are 0.06%, which makes it one of the least expensive products in the space.
The fund has a 12-month trailing dividend yield of 1.67%.
Sector Exposure and Top Holdings
ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Information Technology sector - about 20.30% of the portfolio. Industrials and Financials round out the top three.
Looking at individual holdings, Microsoft Corp. (MSFT) accounts for about 4.51% of total assets, followed by Jpmorgan Chase & Co. (JPM) and Johnson & Johnson (JNJ).
Performance and Risk
The ETF has lost about -7.16% so far this year and it's up approximately 14.24% in the last one year (as of 01/26/2022). In the past 52-week period, it has traded between $137.05 and $172.21.
The fund has a beta of 0.87 and standard deviation of 20.68% for the trailing three-year period, which makes VIG a medium risk choice in this particular space. With about 270 holdings, it effectively diversifies company-specific risk.
Alternatives
Vanguard Dividend Appreciation ETF is an excellent option for investors seeking to outperform the Style Box - Large Cap Blend segment of the market. There are other ETFs in the space which investors could consider as well.
IShares MSCI EAFE Growth ETF (EFG) tracks MSCI EAFE Growth Index and the iShares Core Dividend Growth ETF (DGRO) tracks Morningstar US Dividend Growth Index. IShares MSCI EAFE Growth ETF has $12.30 billion in assets, iShares Core Dividend Growth ETF has $22.33 billion. EFG has an expense ratio of 0.35% and DGRO charges 0.08%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Large Cap Blend.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report Microsoft Corporation (MSFT) : Free Stock Analysis Report Johnson & Johnson (JNJ) : Free Stock Analysis Report iShares Core Dividend Growth ETF (DGRO): ETF Research Reports iShares MSCI EAFE Growth ETF (EFG): ETF Research Reports To read this article on Zacks.com click here.
