High inflation, rising interest rates, and geopolitical uncertainty crippled the major market indexes last year. The indexes have enjoyed a respite from the turbulence earlier this year. However, since the market has turned volatile again on concerns over the Fed’s potential interest rate hikes, quality ETFs Vanguard Developed Markets Index Fund (VEA), Vanguard International High Dividend Yield Fund (VYMI), and Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) could be wise investments to stay protected.
Before evaluating these ETFs, let’s discuss why the stock market could remain under pressure in the upcoming months.
Although inflation fell for the seventh straight month annually in January, the Personal Consumption Expenditure (PCE) increased 0.6% for the month and 4.7% year-over-year. The Fed closely tracks PCE to gauge inflation, and the rise in PCE is worrying as it implies that the central bank still has its work cut out.
Minutes from the Fed’s policy meeting held earlier this month show that the officials believe interest rates need to move higher and stay elevated until inflation reaches 2%. This has led many analysts to believe that the Fed will raise the fed funds rate above 5% this year. This could keep the stock market under pressure in the upcoming months.
With the stock market expected to remain volatile, it could be wise for investors to buy ETFs such as VEA, VYMI, and SPHD, given their diversified holdings and dividend payments.
Let’s take a detailed look at these ETFs:
Vanguard Developed Markets Index Fund (VEA)
VEA is an exchange-traded fund launched and managed by The Vanguard Group, Inc. It invests in stocks of companies operating across diversified sectors. The fund invests in growth and value stocks of companies across diversified market capitalization. It seeks to track the performance of the FTSE Developed All Cap ex US Index.
With $105.64 billion in assets under management, VEA’s top holding is Nestlé S.A. (NESN), with a 1.52% weighting, followed by Vanguard Cash Management Market Liquidity Fund, with a 1.43% weighting, and ASML Holding N.V. (ASML), with 1.23%. It has a total of 4,064 holdings.
VEA has an expense ratio of 0.05%, lower than the category average of 0.40%. VEA’s fund inflows came in at $4.48 billion over the past six months and $8.31 billion over the past year. It currently has a NAV of $44.13.
The ETF pays an annual dividend of $1.22, which yields 2.77% on the current price. It has a four-year average dividend yield of 2.94%.
VEA has declined 7.4% over the past six months and 5.2% year-to-date to close the last trading session at $44.17.
VEA’s POWR Ratings reflect this promising outlook. The ETF’s overall B rating equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
VEA has an A for Trade and a B for Buy & Hold. Of the 80 ETFs in the A-rated European Equities ETFs group, it is ranked #40. Click here to access VEA’s POWR Rating for Peer.
Vanguard International High Dividend Yield Fund (VYMI)
VYMI is an ETF launched and managed by The Vanguard Group, Inc. It invests in stocks of companies operating across diversified sectors. The fund invests in growth and value stocks of companies across diversified market capitalization. It invests in dividend-paying stocks of companies. It seeks to track the performance of the FTSE All-World ex US High Dividend Yield Index.
With $5.53 billion in AUM, the fund has a total of 1,276 holdings. VYMI’s top holding is Shell plc (SHEL), with a 1.83% weighting, followed by Rogers Corporation (ROG), with a 1.76% weighting, and Novartis AG (NOVN), with 1.60%.
VYMI has an expense ratio of 0.22%, lower than the category average of 0.40%. It currently has a NAV of $62.04. Its fund inflows came in at $584.43 million over the past three months and $2.07 billion over the past year.
The ETF pays an annual dividend of $2.80, which yields 4.51% on the current price. Its dividend payouts have increased at a CAGR of 5.5% over the past five years. It has a four-year average dividend yield of 4.21%.
VYMI has gained 5.9% over the past six months and 4.4% year-to-date to close the last trading session at $62.16.
VYMI’s strong outlook is reflected in its POWR Ratings. The ETF has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Trade, Buy & Hold, and Peer. It is ranked first among 100 ETFs in the Emerging Markets Equities ETFs group. To access all the POWR Ratings for VYMI, click here.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
SPHD is an ETF launched and managed by Invesco Capital Management LLC. The fund invests in stocks of companies operating across diversified sectors. It invests in less volatile stocks of large-cap companies. It invests in dividend-paying stocks of companies. It seeks to track the performance of the S&P 500 Low Volatility High Dividend Index.
With $3.84 billion in AUM, SPHD’s top holding is Altria Group, Inc. (MO), with a 3.24% weighting, followed by AT&T Inc. (T), with a 3.09% weighting, and Verizon Communications Inc. (VZ), with 2.90%. It has a total of 51 holdings.
SPHD has an expense ratio of 0.30%, lower than the category average of 0.69%. SPHD’s fund inflows came in at $46.23 million over the past six months and $799.50 million over the past year. It currently has a NAV of $43.44.
The ETF pays an annual dividend of $1.71, which yields 3.97% on the current price. Its dividend payouts have increased at a CAGR of 4.5% over the past five years. It has a four-year average dividend yield of 4.26%.
SPHD has declined 1.6% year-to-date and 4.2% over the past year to close the last trading session at $43.13.
SPHD’s POWR Ratings are consistent with its promising outlook. The ETF has an overall B rating, which equates to Buy in our proprietary rating system.
It also has a B grade for Trade and Buy & Hold. It is ranked #48 out of 86 ETFs within the A-rated Large Cap Value ETFs group. To access SPHD’s POWR Rating for Peer, click here.
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VEA shares were unchanged in premarket trading Wednesday. Year-to-date, VEA has gained 5.24%, versus a 3.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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