While technology and semiconductor stocks have dominated market headlines, a different sector is showing strong performance. Analysis indicates that certain Vanguard exchange-traded funds (ETFs) are currently outpacing the returns of the S&P 500 index for year to date in 2026.
VYM’s Outperformance Against Market Leaders
The Vanguard High Dividend Yield ETF (NYSEMKT: VYM) is demonstrating notable strength, reportedly leading the index by approximately three percentage points year-to-date. This outperformance is significant given the continued market dominance of technology and artificial intelligence (AI) sectors.
In comparison, value investments have also seen substantial gains. The Vanguard Value ETF (NYSEMKT: VTV), for instance, has outperformed the S&P 500 by more than six percentage points in 2026 alone.
Investment Strategy and Portfolio Composition
The strategy employed by VYM is designed to capture high dividend yields. The fund begins by analyzing a broad collection of U.S. stocks, forecasting their dividend yield over the next twelve months, and then includes those assets representing the top half of that projected yield.
This approach results in a diversified portfolio holding more than 600 stocks and generating an average yield of about 2.3%. Although technology accounts for around 15% of VYM’s current holdings—ensuring it has benefited from some tech rally—other market segments have been the primary drivers of gains this year.
Specifically, overweight allocations to energy stocks (approximately 9% of VYM’s assets) and industrial stocks (around 15%) have contributed significantly to its positive performance. Furthermore, when comparing valuations, VYM trades at a forward price-to-earnings (P/E) ratio of 16, which is notably lower than the multiple of 23 seen by the Vanguard S&P 500 ETF (NYSEMKT: VOO).
Macroeconomic Headwinds and Market Outlook
Several macroeconomic factors suggest that continued outperformance relative to tech stocks may be possible. Key concerns include potential shifts in Federal Reserve policy and persistent inflation.
The expectation of interest rate cuts from the Fed, which has been a major tailwind for growth and AI sectors, is becoming less certain for 2026 or even into 2027. Should the Fed raise rates instead of cutting them, that crucial support mechanism could disappear.
Additionally, inflation is projected to remain stubbornly high in the near future. This persistent inflationary environment may be linked to ongoing geopolitical tensions, such as the Iran war, or potential trade disruptions like tariffs suggested by political figures.
While these conditions do not guarantee positive returns for the remainder of 2026 and beyond, they enhance the likelihood that value-oriented investments could outperform tech stocks and the broader S&P 500. This pattern reflects a growing investor pivot back toward more defensive and value-based equities.
