Both the Fidelity High Dividend ETF (FDVV +0.41%) and the Vanguard High Dividend Yield ETF (VYM +0.33%) aim to deliver above-average income by focusing on companies with strong dividend profiles.

While FDVV introduces sector tilts for yield enhancement, VYM tracks a broad, passively managed index of high-yield stocks, leading to meaningful differences in cost, diversification, and sector exposure.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500. The 1-yr return represents total return over the trailing 12 months.

VYM is more affordable to own, charging a much lower expense ratio. However, FDVV offers a higher dividend payout, which can give it an edge for income-focused investors.

Performance & risk comparison

What’s inside

VYM holds 566 stocks and uses a full-replication approach to mirror its underlying high-dividend index. Its largest sector exposures are financial services (making up 21% of total assets), technology (18%), and healthcare (13%), with top positions in Broadcom, JPMorgan Chase, and Exxon Mobil. The fund’s broad reach and index-tracking approach provide wide diversification.

FDVV, by contrast, invests in just 107 holdings and leans more heavily on technology (26%), followed by financial services (19%) and consumer defensive (12%). Its top stocks include Nvidia, Apple, and Microsoft, reflecting a pronounced tech tilt that could influence both yield and risk characteristics compared to VYM’s broader mix.

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What this means for investors

VYM and FDVV both aim to deliver higher-than-average dividend payments, and between the two, FDVV offers the higher yield. However, its higher expense ratio will eat into those earnings, so that’s a factor investors will need to consider.

The primary difference between these two funds lies in diversification. VYM is the more diversified fund, with hundreds more stocks than FDVV, and it’s also less heavily weighted toward technology.

Tech stocks can be more lucrative than those from other industries, as seen with FDVV’s higher five-year total returns compared to VYM. However, it’s also often more volatile, which is reflected in FDVV’s steeper drawdown and higher beta.

For those looking for added diversification and stability, VYM’s broad mix of stocks can help mitigate risk. While it offers a lower dividend yield, its lower expense ratio could also save you thousands of dollars in fees over time.

FDVV, on the other hand, can be a smart choice for those seeking higher earnings. It has experienced more severe price swings in recent years, but it’s also earned higher returns and offers a higher dividend payout. If you’re comfortable with slightly more volatility, FDVV could be the more lucrative option.

Glossary

Expense ratio: The annual fee, expressed as a percentage, that a fund charges to manage your investment.
Dividend yield: The annual dividend income expressed as a percentage of the fund’s price.
ETF (Exchange-Traded Fund): A fund that trades on stock exchanges and typically tracks an index or sector.
Beta: A measure of a fund’s volatility compared to the overall market, usually the S&P 500.
Drawdown: The percentage decline from a fund’s peak value to its lowest point over a specific period.
AUM (Assets Under Management): The total market value of assets that a fund manages on behalf of investors.
Full-replication approach: A strategy where a fund holds all securities in its benchmark index in the same proportions.
Sector tilt: An investment strategy that intentionally overweights or underweights certain sectors compared to a benchmark.
Index-tracking: A strategy where a fund aims to replicate the performance of a specific market index.