When you consider what’s outperformed the S&P 500 (SNPINDEX: ^GSPC), your first intuition might be tech or semiconductors. How about dividend shares? Quite a lot of these exchange-traded funds (ETFs) are beating the S&P 500 in 2026, too.
The Vanguard High Dividend Yield ETF (NYSEMKT: VYM) is thrashing the index by roughly 3 proportion factors 12 months to this point. It could not sound like rather a lot, however for this to occur throughout a time when tech and synthetic intelligence (AI) are nonetheless dominating, it’s.
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Why VYM is thrashing the S&P 500 in 2026
The Vanguard High Dividend Yield ETF makes use of a comparatively easy portfolio development technique. It begins with a broad universe of U.S. shares, calculates a forecast 12-month dividend yield for them, and contains the highest half of the yield for the ultimate portfolio. It’s easy, diversified (greater than 600 shares in complete), and yields round 2.3%.
Tech shares account for round 15% of the portfolio proper now, so it hasn’t fully missed out on the rally. But different areas of the market have been the actual differentiators this 12 months.
Overweights in outperforming power and industrial shares (roughly 9% and 15% of VYM’s portfolio, respectively) have helped drive features this 12 months.
Value stocks, represented by the Vanguard Value ETF (NYSEMKT: VTV), have crushed the S&P 500 by greater than 6 proportion factors in 2026. The Vanguard High Dividend Yield ETF trades at a ahead price-to-earnings (P/E) ratio of 16 in comparison with a a number of of 23 for the Vanguard S&P 500 ETF (NYSEMKT: VOO).
In different phrases, tech will get all of the headlines. But this ETF has additionally been investing closely in what’s beating the market. The 21% allocation to financials hasn’t helped a lot, however the web impact has nonetheless been constructive.
Why it could possibly maintain beating the S&P 500
It’s more and more unlikely that the Fed will reduce charges in 2026 and even properly into 2027. Earnings have performed a giant a part of why tech has accomplished so properly this 12 months, however there was additionally a built-in assumption that the Fed would be capable of ease monetary situations. If the Fed hikes charges moderately than chopping them, an necessary tailwind for tech, progress, and AI shares could possibly be gone.
Inflation additionally seems to be set to stay stubbornly excessive for the foreseeable future. This will doubtless stay the case so long as the Iran warfare continues. Plus, if President Donald Trump brings tariffs again, as has been prompt, it’s going to simply be one other catalyst for greater inflation and slower progress.
