VYM Is Great, But Vanguard’s Other High Yield ETF Pays Twice As Much

Core Insights - The increasing demand for artificial intelligence (AI) has positively impacted the stock market, particularly tech stocks, leading to higher valuations [2] - Investors are becoming cautious due to high stock valuations and are seeking low-cost alternatives, such as exchange-traded funds (ETFs), for investment [2] - Vanguard is highlighted as a prominent player in the ETF market, offering a variety of options suitable for different investor needs [3] ETF Overview - The Vanguard High Dividend Yield ETF (VYM) is noted for its yield of 2.39% and holds over 500 stocks with a low expense ratio of 0.06%, providing significant diversification [3] - The Vanguard High-Yield Active ETF (VGHY) offers a higher yield of 6.20% and pays monthly dividends, focusing on below investment-grade bonds [4][6] - VGHY holds 233 junk bonds, with 45.58% rated BB and 35.58% rated B, indicating a higher credit and interest rate risk due to its exposure to lower-rated securities [4][7] Risk and Return Profile - Junk bonds, which VGHY invests in, are characterized by higher yields but also carry increased risk due to lower credit ratings, representing debt from financially struggling companies [5] - VGHY has assets totaling $80 million and provides high diversification, with 72% of its bonds from the industrial sector and 10% from the finance sector [7] - The fund's bond maturity is primarily between 1 to 5 years (55%) and 5 to 10 years (40%), with some bonds offering coupon rates exceeding 10% [6][7]