The Vanguard High Dividend ETF Doesn't Play Well With Bears

Dividend ETFs are more popular than ever, thanks to the central banks of the world giving us zero interest rate policies (ZIRP), but the word "dividend" in an ETF means different things in different funds. Some funds target very high-yields, such as Global X SuperDividend ETF (NYSEARCA:SDIV), but others such as Vanguard Dividend Appreciation ETF (NYSEARCA:VIG) aim for growth, while WisdomTree has an entire lineup of ETFs that use dividends as a selection factor in their indexes. Investors benefit from having a wide range of choices among dividend funds, with sector and international exposure sliced and diced in many different ways. Picking the right fund for a portfolio can be a chore, though, since investors can dig through dozens of options.

The past couple of weeks have been useful for evaluating VYM. The underperformance in 2008 doesn't appear to be a fluke, and investors can reasonably expect underperformance in the next correction or bear market. Over a full market cycle, VYM is competitive with other dividend ETFs; but some funds clearly perform better during bear markets, while VYM has led during bull markets. This pattern may not hold up in the future, but since VIG tends to hold firms with stronger financials, DVY has one-third of assets in utilities, and SDY has more of a value tilt, it makes sense that they've done better during major sell-offs.

Source: Seeking Alpha

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