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Surging Inflation Makes This Value-Dividend ETF A Strong Option

Updated: May 16, 2022

It is no secret that inflation has surged to its highest levels in four decades. The recent April CPI Data that was released Wednesday showed an annualized inflation rate of 8.3%. Although this was slightly lower than the March number of 8.5%, many investors are scratching their heads looking for a way to beat the rising prices. With rising interest rates and an increasingly shaky economic environment, Perspective sees a favorable play in Value Dividend ETFs. They help diversify amongst blue-chip companies with strong/predictable cash flows. The companies that make up the fund are not as exposed to rising interest rates as growth companies because of their strong balance sheets and ability to cover their current liabilities and debt. Although these companies are not immune to an economic downturn, they have a history of relatively stable performance and consistent dividends that help in the stagflation environment we may be entering in near term. (Stagflation is a period of rising prices/inflation combined with slowing GDP/economic growth and rising unemployment rates).

Vanguard High Dividend Yield ETF (VYM):

As a blue-chip, value-oriented Dividend ETF, VYM is not very exposed to high growth/technology companies that are suffering in this environment. The fund is down just over 5% for the year, compared to the S&P 500 that is down almost 18% and nearing bear market territory. An attractive dividend yield of nearly 3% and extremely low expense ratio are the cherries on top. We believe in passively invested funds with low expenses. Historically, passive funds have outperformed actively managed funds on a net return basis due to the actively managed funds lofty expense ratios. VYM is a Perspective Pick during the enduring economic turmoil.

- Last Closing Price: $106.72

- YTD Performance: -5.26%

- Dividend Yield: 2.92%

- Expense Ratio: .06%

- Top Holdings:

o Johnson & Johnson

o JP Morgan Chase & Co.

o Procter & Gamble Co.

o Exxon Mobil Corp.

o Chevron Corp.

o Home Depot Inc.

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