The potential reasons behind Vanguard High Dividend Yield ETF (VYM) standing out as a top ETF choice for 2025.

Investment strategy focused on Vanguard High Dividend Yield ETF (VYM) as potential top ETF for 2025.

The Vanguard High Dividend Yield ETF (VYM), an exchange-traded fund (ETF), offers investors a unique opportunity to tap into a diversified portfolio of high-dividend stocks. This ETF tracks the FTSE High Dividend Yield Index, which consists of approximately 580 stocks.

One of the key attractions of the Vanguard High Dividend Yield ETF is its defensive nature. As a defensive play, it is designed to perform relatively well during market downturns, offering investors a steady stream of income. Lower interest rates could further boost the appeal of this ETF, as they typically make high-dividend stocks more attractive to investors.

In contrast, the S&P 500, which is historically expensive at 30 times earnings, might pull back by the end of the year due to tariffs, geopolitical conflicts, and other challenges. The tech sector, which accounts for over a third of the S&P 500's market cap, could be particularly vulnerable in such a scenario. In contrast, the Vanguard High Dividend Yield ETF allocates only 12% of its portfolio to tech stocks, making it a more balanced and reliable long-term investment.

The Vanguard High Dividend Yield ETF has delivered impressive returns over the past 10 years. It has delivered a total return of 195%, including its reinvested dividends, and its share price has risen 115% during this period. The ETF also pays a 30-day SEC yield of 2.6%, providing a steady income for investors.

It's worth noting that the Vanguard High Dividend Yield ETF doesn't invest in real estate investment trusts (REITs), which can make it a more predictable long-term investment. This is in contrast to the Vanguard S&P 500 ETF, which passively tracks the S&P 500 and has a lower expense ratio of 0.03%.

When inflation is reined in, funds like the Vanguard High Dividend Yield ETF could attract a lot more attention. In the first half of 2022, the 10-Year Treasury's yield was below 2%, indicating a low-interest-rate environment that favours high-dividend stocks.

The top holdings of the Vanguard High Dividend Yield ETF include Broadcom, JPMorgan Chase, ExxonMobil, Walmart, and Johnson & Johnson, among others. These companies are known for their stable dividends and long-term growth potential.

In conclusion, the Vanguard High Dividend Yield ETF provides a compelling opportunity for investors seeking a defensive play with a steady stream of income. Its diversified portfolio, low exposure to tech stocks, and impressive track record make it an attractive option for long-term investors. However, like all investments, it comes with its own risks and should be considered as part of a well-diversified portfolio.