Top Vanguard ETF Crushing S&P 500 Returns So Far in 2026
Key Points
The market rotation that began earlier this year has led to outperformance across several non-tech sectors.
Thanks to strong performance from energy, industrials, and value stocks, the Vanguard High Dividend Yield ETF (VYM) is beating the S&P 500 by more than 3% year to date.
Here's why the momentum could continue through the remainder of 2026.
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When you think of what's outperformed the S&P 500 (SNPINDEX: ^GSPC), your first instinct is probably tech or semiconductors. How about dividend stocks? A lot of those exchange-traded funds (ETFs) are beating the S&P 500 in 2026, too.
The Vanguard High Dividend Yield ETF (NYSEMKT: VYM) is beating the index by roughly 3 percentage points year to date. It may not sound like a lot, but for this to happen during a time when tech and artificial intelligence (AI) are still dominating, it is.
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Why VYM is beating the S&P 500 in 2026
The Vanguard High Dividend Yield ETF uses a relatively simple portfolio construction strategy. It starts with a broad universe of U.S. stocks, calculates a forecast 12-month dividend yield for them, and includes the top half of the yield for the final portfolio. It's straightforward, diversified (more than 600 stocks in total), and yields around 2.3%.
Tech stocks account for around 15% of the portfolio right now, so it hasn't completely missed out on the rally. But other areas of the market have been the real differentiators this year.
- Overweights in outperforming energy and industrial stocks (roughly 9% and 15% of VYM's portfolio, respectively) have helped drive gains this year.
- Value stocks, represented by the Vanguard Value ETF (NYSEMKT: VTV), have beaten the S&P 500 by more than 6 percentage points in 2026. The Vanguard High Dividend Yield ETF trades at a forward price-to-earnings (P/E) ratio of 16 compared to a multiple of 23 for the Vanguard S&P 500 ETF (NYSEMKT: VOO).
In other words, tech gets all the headlines. But this ETF has also been investing heavily in what's beating the market. The 21% allocation to financials hasn't helped much, but the net effect has still been positive.
Why it can keep beating the S&P 500
It's increasingly unlikely that the Fed will cut rates in 2026 or even well into 2027. Earnings have played a big part of why tech has done so well this year, but there was also a built-in assumption that the Fed would be able to ease financial conditions. If the Fed hikes rates rather than cutting them, an important tailwind for tech, growth, and AI stocks could be gone.
Inflation also looks set to remain stubbornly high for the foreseeable future. This will likely remain the case as long as the Iran war continues. Plus, if President Donald Trump brings tariffs back, as has been suggested, it'll just be another catalyst for higher inflation and slower growth.
The conditions may not necessarily lead to positive performance for the remainder of 2026 and beyond, but they increase the chances of beating tech stocks and the S&P 500. Investors have already begun pivoting back toward value and defensive stocks this year. These factors are probably going to help that momentum continue.
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David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard High Dividend Yield ETF, Vanguard S&P 500 ETF, and Vanguard Value ETF. The Motley Fool has a disclosure policy.
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