VYM vs. FDVV: High-Yield Dividend ETFs in 2026

In 2026, as central banks continue to navigate a rising-rate environment, investors seeking income-oriented strategies face a critical choice between two high-dividend ETFs: Vanguard High Dividend Yield ETF (VYM) and Fidelity High Dividend ETF (FDVV). These funds represent divergent approaches to balancing cost-efficiency and yield-enhancement, with distinct implications for portfolio performance in a tightening monetary policy climate.

Cost-Efficiency: The Vanguard Advantage

VYM's expense ratio of 0.06% positions it as a cost-efficient option, significantly undercutting FDVV's 0.15%–0.29% fee structure according to analysis. This disparity becomes critical in a rising-rate environment, where compounding effects amplify the drag of higher fees. For instance, over a decade, a 0.23% difference in expense ratios could erode approximately 10% of cumulative returns, assuming a 7% annualized return. Vanguard's low-cost model aligns with its reputation for passive management, offering broad exposure to 566–571 large-cap U.S. stocks, including sector leaders like Broadcom and JPMorgan Chase as per holdings data.

FDVV, while more expensive, justifies its higher fees through active indexing and a concentrated portfolio of 107–120 holdings. Its 0.29% expense ratio reflects a strategy prioritizing yield over cost, which may appeal to investors who value immediate income over fee savings. However, in a prolonged rate hike cycle, the compounding drag of FDVV's fees could outweigh its yield benefits for conservative, long-term holders.

Yield-Enhancement: FDVV's Aggressive Edge

FDVV's 3.02% dividend yield outpaces VYM's 2.42% according to data, making it a compelling choice for income-focused investors. This premium is driven by its concentrated portfolio, with 33.77% of assets allocated to top ten holdings as reported, including high-yield tech and financials giants. During the 2022–2023 rate hike cycle, FDVV's yield-driven strategy translated to superior returns: a 11.80% annualized return compared to VYM's 10.16%. However, this outperformance came at a cost-FDVV suffered a steeper 10.02% loss in 2022 versus VYM's 6.50% decline, underscoring the volatility inherent in yield-chasing strategies.

VYM's broader diversification, with sector allocations spanning financials (21.1%), technology (14.1%), and healthcare (12.3%), provides a buffer against sector-specific downturns. Its market-cap-weighted approach reduces reliance on individual stocks, mitigating downside risks in a rising-rate environment where overvalued yielders may falter.

Historical Performance: Lessons from 2022–2023

The 2022–2023 period offers instructive parallels for 2026. FDVV's aggressive yield strategy delivered a cumulative return of +130.29% from 2016 to 2025, outperforming VYM's +96.83%. Yet, FDVV's higher expense ratio and volatility- evidenced by a 40.25% drawdown during the 2020 crash-highlight the trade-offs between yield and stability. In contrast, VYM's lower fees and diversified holdings preserved capital during downturns, even if its growth lagged FDVV's.

Strategic Implications for 2026

For investors in 2026, the choice between VYM and FDVV hinges on risk tolerance and time horizon. FDVV's higher yield and historical outperformance make it suitable for those prioritizing income and willing to accept short-term volatility. Conversely, VYM's cost-efficiency and diversification appeal to long-term investors seeking to preserve capital and minimize fee drag.

In a rising-rate environment, FDVV's concentrated portfolio may face headwinds if high-yield sectors underperform, while VYM's broad exposure could cushion against sector-specific shocks. Investors must also weigh the compounding impact of fees: VYM's 0.06% advantage could translate to hundreds of basis points in excess returns over a decade.

Conclusion

VYM and FDVV embody contrasting philosophies in the high-dividend ETF space. VYM's low-cost, diversified approach aligns with defensive, long-term strategies, while FDVV's yield-focused, active indexing suits income-seekers with a higher risk appetite. As 2026 unfolds, the rising-rate environment will test the resilience of both models, with cost-efficiency and yield-enhancement emerging as pivotal factors in determining which ETF better serves investors' goals.