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VIG: Investors Can Do Better In The Current Inflationary Environment

Skeptical12 profile picture


  • Even though VIG has had good years, the fund has underperformed the S&P 500 and is currently underperforming several funds that are better positioned in today's inflationary environment.
  • This fund is heavily underweight inflation because of the low exposure to commodities, and holds no energy stocks.
  • Dividend and Income investors can find better performing funds that offer better inflation protection in today's investing environment.
Wooden cubes building word ETF (abbreviation of Exchange Traded Fund) on light blue background

Nastassia Samal/iStock via Getty Images

Investing in 2022 isn't getting any easier. With inflation consistently running above 5% according to the consumer price index, many indexes such as the S&P 500 (SPY) at or near record highs, and yields on funds and stocks the lowest

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Skeptical12 profile picture
I am an avid investor and trader who has worked in law, politics, and business.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (16)

SenBiden profile picture
Take a look at VIG's holdings, not just the top 10 but the top 70 or so. There are more than a few contributors on SA who make a living writing articles on DGI stocks from the VIG holdings. I've looked there myself for ideas for the past 15 years. Great place to start to look for stocks that provide yield and growth. It outperforms in the long run especially through down markets. I don't own it for the yield but I have made several tens of thousands on this ETF, more than any other.
I have held VIG for several years. I have gotten good dividend growth and good total return. This has happened because the corporations in VIG have provided strong sales growth and strong earnings growth. I do not just view VIG as a dividend growth fund. Instead, I view it as a collection of most of the biggest and best corporations in America. Over 90% of these companies have moats. I'm confident that they will figure out how to profitably cope with what the future brings.
eman73 profile picture
I purposely avoid funds that have exposure to oil.
whoisjohngaltmn profile picture
@eman73 thanks for sharing
LostinShalimar profile picture
@eman73 I purposely invest in funds that have exposure to oil.
@eman73 I purposely invest in funds with exposure to oil, and then top off the 50 gallon tank on my diesel truck and drive around aimlessly at 100mph to get the lowest gas mileage possible (~3mpg). As long as oil stays above $90/barrel I’m making money. If it drops below that I’ll continue to bathe in 10W-30 regardless.
Thanks for this article. I'm confused about a few points.

You say "Investing is about the future, not the past". I agree. Historically, SCHD has given slightly better returns, but going forward I prefer VIG. SCHD has more traditional companies like CSCO, IBM, VZ in the top 10. Those companies are okay but they don't grow their earnings as quickly as companies like MSFT, V, UNH, or COST in VIG. Yes companies like VZ are definitely value plays, but over the next 10 years, I anticipate the companies in VIG to give better total returns

You say VYM is a better pick because it is over weight financials and energy which will obviously outperform in higher inflationary environment.
I would argue this is already priced in. BAC is trading at record high valuations: P/B is the highest it's been for 10 years. Same for JPM except for the past 2 months. And oil companies like XOM and CVX are also near all time highs. As soon as russia calms down and global oil production is back to normal, these companies will return to normal prices as well
Skeptical12 profile picture
@dgi123 I disagree, China has open their economy yet and oil prices were high before the Russia-Ukraine conflict, which may persist for years. Oil companies will do very well and oil companies will pay very good dividends even if oil prices drop 15-20% from today's levels.
D.S. Leach & C.E. Leach profile picture

I currently hold a sizable position in VDIGX (original mutual fund sister to VIG). VDIGX has performed marginally better than VIG over the last year.

I'm well aware that most advisors warn against market timing but....

Given the Fed has signaled (in flashing red neon) raising short term rates over the balance of this year, major indexes near their all time highs, and increased prospects for a recession, is now the time?
Psycho Analyst profile picture
@D.S. Leach & C.E. Leach VDIGX is very different from VIG. It is an actively managed fund run by Donald Kilbride. Its stocks are hand picked and it only holds a small number of those stocks. VIG is algorithm-driven and uses a very simplistic algorithm that misses many factors that would be important to VDIGX. It holds hundreds of stocks.

The big problem with VDIGX, which I used to own, is that it pays off large, taxable capital gains each year making it a poor holding for a taxable account. It has underperformed over the past decade too.
Gary J is Rich on AMZN profile picture
"The fund has performed reasonably well over the last 5 years compared to other dividend funds and the S&P 500, offering investors solid income and total returns."

This is what matters not "current". Market timing is for trading stocks not ETFs.
Skeptical12 profile picture
@Gary J is Rich on AMZN This is a long-term call, not an attempt to time the market perfectly.
Gary J is Rich on AMZN profile picture

Then fix all of the "currents" in the article.
Skeptical12 profile picture
@Gary J is Rich on AMZN I think this is the right long-term call right now. In the current market environment.
GabsterX profile picture
So now is the time to buy ETFs with more exposures to energy and commodities at all time highs?
Skeptical12 profile picture
@GabsterX Many funds are at or near all-time highs, since the overall market is close to an all-time high, but investing is about the future, if people sold stocks or fund at their all-time highs 3 years ago they would have missed out on significant gains.
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