VIG ETF Review [18 Dividend ETF Reviews, Part 5]

hello everyone and welcome back we're in part number five of our 18 part series on dividend etfs with assets over 1 billion dollars i ask you guys which etf you wanted to see next and the majority of you wanted to see either vig or vym so over the next two videos i'm going to be covering both of those etfs so far we've covered degrow d g r w s p h d and then last video is schd in this video we're going to cover what vig's dividend yield is we'll look at fees we'll also look at how the dividend distribution has grown since 2013. we'll take a look at the strategy so what criteria does vig use to select its stocks we'll look at risk how vig does in bad markets like the covid crisis take a look at the holdings stocks and sectors and then at the end of the video i'll show you how vig the etf has performed in addition to how its underlying index has performed going a little bit further than when the index actually existed excuse me when the etf actually existed so the vig vanguard dividend appreciation etf tracks the nasdaq us dividend achievers select index this is i believe the biggest dividend etf could be wrong on that almost 50 billion in assets under management the dividend yield is relatively low at 1.78 percent and then a six basis point expense ratio here's the distribution history for vig going back to june 1st 2013. here it was at 35 excuse me 35 cents payout per quarter sorry this graph's a little scrunched today it's at 60 which is a compound growth rate of about 6.9 now these are shown quarterly so if we would annualize these it would be a little bit smoother but you can see there is quite a bit of lumpiness in this chart which just illustrates that you know just because it's a dividend growth etf comprised of dividend growth stocks there are events that would cause this index to change holdings maybe add a lower yielding position or maybe there happens to be a dividend cut i know it has some filters that make that less of a possibility but that is something that can happen regardless of of how quality the etf is um you also have some lumpiness from quarters like this when you might have had some additional special dividends or something that came in um so just be aware that you know it is lumpy but in general the the trend of this is clearly clearly higher now we'll take a look at the strategy so vig starts with the nasdaq us benchmark index which is essentially a entire us market cap index with about 2781 constituents at the moment they require at least 10 years of dividend growth there's a minimum three month average daily volume of one million dollars or more and then the stock cannot be in bankruptcy or in any other proceeding that would make it non-eligible for the index and then finally just like we saw with schd the vig has a proprietary profitability screen the schd screen we saw that in detail listed in the index we don't know what vanguard is using since this is proprietary this also excludes limited partnerships and reits again where four out of five etfs have excluded reits from the equation as to the reasons for that i'll address those in another video this also removes spin-offs within two days so if a company you know spins off part of its business and to a new entity that will get eliminated from the index within two business days this is a market cap weighted fund just like schd the weights were capped at four percent it's rebalanced twice a year or excuse me once a year using last december's data so every march gets rebalanced and it's using you know this year used december of 2019 data next year it's going to use december 2020 data and then there are no sector constraints in this particular fund now we'll take a look at risk and this is where this particular fund really shines this is probably the best etf that i'm aware of for low volatility at least within the dividend the dividend realm you can see here the upside down side capture ratio this is the first etf we've reviewed that captured more upside of the market than downside and then here is the maximum drawdown during the covid crisis the peak date here was february 1st 2020 and then the value was march 31st 2020 the fund was down 17.24 percent compared to the index down 20.3 and you will notice from video to video these benchmark indices change and that just reflects which category the etf is in so in this particular case vig is noted as a large blend fund whereas last video we saw that schd was a large cap value fund so the index last video was the value index today it is the s p 500 and the s p 500 actually held up quite a bit better than value stocks in the most recent covid collapse so the index was down 20.3 still vig held up pretty well now we'll take a look at sector weightings here we see that vig really has basically three sectors that are significantly different weightings than the s p 500 and those are a significant overweight position in industrials a significant underweight position in technology and a significant overweight position in consumer defensive or consumer staples it's also pretty underweighted here in communication services the rest of the sectors are somewhat similar relative to the s p here are the holdings in the vig fund as of september 2nd 2020 and you'll notice just looking down the list that these are extremely extremely high quality highly profitable very well known companies for a company to grow its dividend for 10 consecutive years doesn't necessarily mean that the business moving forward is a great business all it does is give you a pretty good indication that this business has done a lot of things right it has dominated its industry it has some kind of advantage that differentiates it from its peers and allows it to remain extremely profitable in all kinds of different market environments so the strength of this fund really is in that quality competitive advantage focus and that's reflected in a lot of the names that you see here microsoft walmart procter gamble johnson johnson visa home depot united health there's disney comcast pepsi oracle abbott mcdonald's costco i mean just go on the list and it's just full of impressive very high quality very strong stable companies and that's why you see the risk numbers that we saw last slide be so impressive here is how vig the etf has performed here we've got data going back 10 years which would be from september 2010 to today and you'll notice that the total return relative to the s p 500 in this particular case it has been 1.6 per year lower it's been a little bit better in recent years and most of that underperformance can be summed up in the last one year when basically technology has completely run off and left everything else this fund is underweighted technology so it's not able to keep up in this kind of environment i suspect 10 years from now we'll look back and vig will have a pretty strong running particularly if the technology sector here starts to underperform you could see vig outperform the s p 500 it's also worth mentioning that this fund captures less downside than than the market it also captures less upside so this 10-year metric going from 2010 which was coming off of an extreme bottom in 2009 not going to hold up as well whenever you've got the market recovering this fund really shines whenever the market is going down this will hold up quite a bit better or at least it has historically the underlying index that vig tracks is like i mentioned earlier the nasdaq u.s dividend achievers index if you enter this ticker symbol into the bloomberg terminal you can see history going back to january 31st of 2000 so if we look from this date to 9 to 2020 september 2nd you see that the vig index that it's tracking has outperformed the s p by about 1.1 percent per year most of this though is not in the bull markets this fund outperforms by going down less that's really the the strength that i'm sure you're getting the picture by now that that's what this fund really is is all about so overall the pros most strongly are less downside relative to the s p 500 i think if you're looking in the d the dividend etf space and you're afraid of downside this is a really great option for you to do further research into the 231 holdings is a good amount of diversification it's not so diversified that it's exactly equal to the s p but it's also not so concentrated that the performance is all over the road the performance numbers have also been pretty impressive and then you've got that razor low six basis point expense ratio some of the cons as i mentioned before performance in bull markets is not going to be as strong if you look from the very bottom or close to the bottom in 2009 to september 2nd the vig etf lagged the s p by about one and a half percent annually so you're not going to keep up in a good market but you are going to protect more on the downside and then this fund also sacrifices dividend yield for a focus on dividend growth and more specifically consistency of dividend growth so if you're looking for a fund that's going to produce actual cash flow for you each quarter as much as you can get something like an sc hd is probably a better option for you to look at if you're willing to sell some shares to produce your income and your priority is more for protecting downside this might be a better fit the next video i'll take a look at the vanguard vym which is a higher dividend yield focus if you like this video and you want to see the next video when it comes out be sure to hit the subscribe button if you have any comments or any suggestions for how i can make these videos better love to hear from you go ahead and put a comment in the comment section as well thank you all so much for your support and i appreciate you guys watching this video have a great week great weekend

Channel: Nathan Winklepleck, CFA

Views: 12,188

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Id: PKEtIhY5cmc

Length: 13min 6sec (786 seconds)

Published: Mon Sep 07 2020