Although inflation has significantly decreased from its peak in mid-2022, it remains notably higher than the Federal Reserve’s desired 2% level. This continued high inflation makes interest rate cuts unlikely in the near future.
Therefore, I think quality large-cap ETFs, Vanguard Value ETF (VTV), Vanguard High Dividend Yield ETF (VYM), and iShares Russell 1000 Value ETF (IWD), could be worth adding to one’s watchlist. These funds also pay stable dividends and are rated an A (Strong Buy) in our proprietary rating system.
In July, the U.S. Consumer Price Index (CPI) rose by 3.2% compared to the previous year, suggesting a potential easing of inflationary pressures. Prices increased by 0.2% for the month, in line with expectations. However, the annual rate was higher than in June and the first annual increase in over a year.
While Fed officials, including Chairman Jerome Powell, have warned that the full effect of the rate increases has not been felt yet, economists worry that the Fed could overtighten and send the economy into recession.
Moreover, veteran economist Jim O’Neill believes that major central banks will need to maintain interest rates at around 5% for an extended period despite a decrease in inflation.
In addition, with a recession still in the cards, the macroeconomic outlook puts pressure on the US banking sector. Also, largely influenced by the Fed’s 11 interest rate hikes since March 2022, Moody’s has downgraded credit ratings for ten small and mid-sized US banks and is reviewing larger banks, including Bank of New York Mellon, US Bancorp, Northern Trust, and State Street, for potential downgrades. As a result, consumer sentiment is dropping.
Also, tighter credit conditions for banks, as suggested by Moody’s, could have a ripple effect on borrowing costs for businesses and consumers. This may impact corporate earnings and consumer spending, which are important drivers of stock market performance.
However, large-cap ETFs provide stability, reliable returns, and consistent cash flows. Moreover, they come with lower volatility, higher dividends, and reduced risk.
Let us take a look at the ETFs mentioned above:
Vanguard Value ETF (VTV)
VTV is an exchange-traded fund launched and managed by The Vanguard Group, Inc. It offers exposure to large-cap companies within the U.S. equity market that exhibit value characteristics. Hence, it is suitable for investors with a relatively longer time horizon seeking to add stability to their portfolios. VTV has net assets of $152.91 billion.
As of August 22, VTV has $100.78 billion in AUM and an NAV of $141.29. Its expense ratio of 0.04% compares to the category average of 0.35%.
VTV’s top holding is Berkshire Hathaway Inc. Class B (BRK.B), which has a 3.65% weighting in the fund. It is followed by UnitedHealth Group Incorporated (UNH) at 2.68%, then JPMorgan Chase & Co. (JPM) with 2.63% weight, and Johnson & Johnson (JNJ) at 2.48%. The fund has a total of 345 holdings, with the top 10 assets comprising 22.86% of AUM.
The fund pays $3.65 per unit annually as dividends. This translates to a yield of 2.57% at the current price, and its four-year average dividend yield is 2.52%. The fund has raised its dividends for the past 12 years consecutively.
It saw a net inflow of $829.91 million over the past three months and $680.83 million over the past month.
VTV has gained 2.9% over the past three months to close the last trading session at $141.32. The fund has a beta of 0.89.
VTV’s robustness is reflected in its POWR Ratings. The ETF has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
VTV also has an A grade for Trade and Buy & Hold. It tops the list of 89 funds in the A-rated Large Cap Value ETFs category.
Click here to see all ratings for VTV (Peer).
Vanguard High Dividend Yield ETF (VYM)
VYM is an exchange-traded fund managed by The Vanguard Group, Inc. The ETF offers exposure to dividend-paying large-cap companies that exhibit value characteristics within the U.S. equity market. VYM’s net assets stand at $63 billion.
As of August 22, VYM has a $48.96 billion AUM and an NAV of $105.84. Its expense ratio of 0.06% compares to the category average of 0.47%.
VYM’s top holdings include JPMorgan Chase & Co. (JPM) with a 3.31% weight, Johnson & Johnson (JNJ) with a 3.12% weight, Exxon Mobil Corporation (XOM) with a 3.12% weight, and Broadcom Inc. (AVGO) with a 2.33% weight. The fund has 463 holdings, with the top 10 assets comprising 24.9% of AUM.
VYM pays $3.34 annually as dividends, which translates to a yield of 3.13% at the current price. Its dividend payout has grown 6.1% CAGR over the past five years. The fund has a four-year average yield of 3.11%.
VYM’s fund inflows came in at $1.65 billion over the past year and $12.10 million over the past five days.
VYM has gained 2.1% over the past three months to close the last trading session at $105.87. The fund has a beta of 0.84.
It’s no surprise that VYM has an overall A rating, which equates to a Strong Buy in our POWR Ratings system.
VYM has an A grade for Buy & Hold and Trade. It is ranked #3 in the same group.
Beyond what we have discussed above, additional Peer ratings for VYM can be found here.
iShares Russell 1000 Value ETF (IWD)
IWD is an exchange-traded fund launched and managed by BlackRock, Inc. The fund seeks to track the performance of the Russell 1000 Value Index by using a representative sampling technique. It provides exposure to large-cap companies that exhibit value characteristics within the U.S. equity market. IWD has net assets of $51.17 billion.
As of August 21, IWD has $49.94 billion in AUM. Its NAV stands at $156.04 as of August 22. Its expense ratio of 0.19% compares to the category average of 0.47%.
IWD’s top holding is Berkshire Hathaway Inc. Class B (BRK.B), which has a 3.33% weighting in the fund. It is followed by JPMorgan Chase & Co. (JPM) with 2.30% weight, Johnson & Johnson (JNJ) at 2.26%, and Exxon Mobil Corporation (XOM) at 2.19% weight. The fund has a total of 1000 holdings, with its top 10 assets comprising 21.5% of its AUM.
The fund pays $3.30 per unit annually as dividends. This translates to a yield of 2.10% at the current price. Its four-year average dividend yield is 2.22%.
IWD has gained 2.8% over the past three months to close the last trading session at $156.09. The fund has a beta of 0.95.
IWD’s fundamental strength is also reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It also has an A grade for Trade and Buy & Hold. IWD is ranked #2 in the same category.
Access IWD’s additional Peer ratings here.
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VTV shares were trading at $141.73 per share on Wednesday morning, up $0.41 (+0.29%). Year-to-date, VTV has gained 2.26%, versus a 16.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...
