VYM Outperforms S&P 500 in 2026 as Value Stocks Rebound

Value Stocks Take the Lead in 2026

For much of the past decade, dividend-focused ETFs lagged broad market-cap-weighted index funds, largely due to higher fees, tax drag, and a growth-dominated market. However, 2026 has seen a shift. As of August 4, 2026, the Vanguard High Dividend Yield ETF (VYM) has delivered a 16.58% cumulative total return, outpacing the Vanguard S&P 500 ETF (VOO) at 13.75% year to date. This performance comes as several mega-cap technology stocks stumbled amid concerns over excessive AI capital spending, benefiting value-oriented strategies.

VYM's Methodology and Portfolio

VYM tracks the FTSE High Dividend Yield Index, which excludes real estate investment trusts (REITs) and companies that haven't paid a regular dividend in the past year or aren't expected to do so. The index ranks remaining stocks by forward dividend yield and weights them by market capitalization. The result is a diversified portfolio of 605 companies with a large-cap value tilt. Sector allocations differ notably from the S&P 500: financials lead at 20.7%, followed by technology at 14.6%, industrials at 14.4%, and healthcare at 12.4%. The fund's average price-to-earnings ratio stands at 21.6, below the S&P 500's, while return on equity is a solid 19.4%.

Tax Efficiency and Yield

One often-overlooked feature is VYM's tax efficiency. The fund offers a 2.22% 30-day SEC yield without relying on covered calls or other derivative strategies. Vanguard reported that 100% of VYM's 2025 dividend and net short-term capital gain distributions qualified as qualified dividend income, making them eligible for lower long-term capital gains tax rates for most investors. The ETF structure itself is tax-efficient due to in-kind creation and redemption, and the exclusion of REITs avoids ordinary income treatment. Over the 10 years ending June 30, VYM produced an 11.60% annualized return before taxes, and after taxes on distributions, the return was still 10.79% annualized.

What it means for income investors

The recent outperformance of VYM highlights the cyclical nature of growth and value leadership. While one year doesn't establish a trend, VYM's tax-efficient structure and broad diversification make it a notable option for income-focused investors seeking exposure to dividend-paying stocks.

Reporting based on: Yahoo Finance. Figures verified against market data where available.