Why Investors Flock to This Vanguard ETF Even Though It Trails the Market

Exploring ETF Investment Choices

When considering investments in exchange-traded funds (ETFs), the vast array of available options can feel overwhelming. Typically, investors gravitate toward funds they believe will yield the highest returns. However, with so many ETF categories, some investors prioritize specific objectives, sometimes choosing funds for features other than maximum total return.

Dividend-focused investing is a prime example. Those who seek out stocks that provide regular income through dividends may not always chase the fastest-growing companies. Instead, they often value a consistent track record of business stability and reliable dividend payments. The Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) is designed to highlight top dividend-paying stocks. In this second installment of a three-part series on the Vanguard ETF for the Voyager Portfolio, we’ll examine how this fund has delivered solid results, even if it hasn’t always matched the performance of broader benchmarks like the S&P 500.

Consistent Performance Through Market Cycles

Comparing the Vanguard Dividend Appreciation ETF’s returns to those of the broader market reveals a clear trend. The ETF tends to underperform during periods of strong market growth. For example, in 2021, it ranked among the lowest 20% of large-blend ETFs. Similarly, during the bull markets of 2023 and 2024, it lagged behind the S&P 500 by 12 and 8 percentage points, respectively.

However, the fund demonstrates its strengths during market downturns. In the bear market of 2022, while the ETF did experience losses, they were only about half as severe as those suffered by the S&P 500. This 10-point outperformance placed it in the top 10% of large-blend funds that year. The ETF also ranked in the top 10% during the challenging market of 2018.

Overall, since the market has spent more years rising than falling, the ETF’s long-term returns have trailed the S&P 500. Over the past decade, it has delivered an average annual return of 12.26%, and over the last 15 years, 11.84% per year—about 1.5 to 2 percentage points below the S&P 500. Nevertheless, these returns remain strong, and the ETF’s income distributions are significantly higher than those from an S&P 500-tracking fund.

Delivering Reliable Income to Investors

Part of the ETF’s total return comes from its regular dividend distributions to shareholders. In 2025, these payouts totaled approximately $3.56 per share, translating to a yield of about 1.7% at recent prices.

While this yield may not seem high, it surpasses the 1.1% yield from an S&P 500 fund and the 0.5% offered by popular Nasdaq 100 ETFs. More importantly, the dividend has grown substantially over time. In 2021, the ETF paid out roughly $2.67 per share, marking a 33% increase in just four years.

Looking Ahead: What’s Next for Vanguard Dividend Appreciation?

While past performance is informative, investors are ultimately interested in how an ETF will perform going forward. The final article in this series on the Vanguard dividend ETF for the Voyager Portfolio will provide a detailed analysis of the fund’s future prospects and how it might align with your investment objectives.

Is Now the Time to Invest in Vanguard Dividend Appreciation ETF?

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