The Vanguard Dividend Appreciation ETF (VIG) was launched on 04/21/2006, and is a smart beta exchange traded fund designed to offer broad exposure to the Style Box - Large Cap Blend category of the market.
What Are Smart Beta ETFs?
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.
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.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
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 managed by Vanguard. VIG has been able to amass assets over $67.84 billion, making it one of the largest ETFs in the Style Box - Large Cap Blend. Before fees and expenses, this particular fund seeks to match the performance of the NASDAQ US Dividend Achievers Select Index.
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
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
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 1.94%.
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 22% of the portfolio. Financials and Healthcare round out the top three.
Taking into account individual holdings, Microsoft Corp. (MSFT) accounts for about 5.15% of the fund's total assets, followed by Apple Inc. (AAPL) and Unitedhealth Group Inc. (UNH).
Performance and Risk
The ETF has gained about 6.36% so far this year and it's up approximately 5.33% in the last one year (as of 08/23/2023). In the past 52-week period, it has traded between $135.16 and $166.95.
The ETF has a beta of 0.85 and standard deviation of 15.63% for the trailing three-year period, making it a medium risk choice in the space. With about 314 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 $12.08 billion in assets, iShares Core Dividend Growth ETF has $23.67 billion. EFG has an expense ratio of 0.36% 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.
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Get it free >>Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
Apple Inc. (AAPL) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
iShares Core Dividend Growth ETF (DGRO): ETF Research Reports
iShares MSCI EAFE Growth ETF (EFG): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
