Vanguard Dividend Growth

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Trollope
Posts: 12
Joined: Wed Sep 10, 2008 12:36 pm

Vanguard Dividend Growth

Post by Trollope » Mon Jun 29, 2020 11:19 am

Vanguard Dividend Growth (VDIGX) usually performs well during downturns in the market. Not this year. Any thoughts?

dukeblue219
Posts: 755
Joined: Fri Jan 29, 2016 12:40 pm

Re: Vanguard Dividend Growth

Post by dukeblue219 » Mon Jun 29, 2020 11:22 am

Big tech was the place to be to avoid the broad crash in March. Dividend funds don't have much exposure to big tech aside from MSFT. That's probably part of it...

jebmke
Posts: 10924
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Vanguard Dividend Growth

Post by jebmke » Mon Jun 29, 2020 11:25 am

The portfolio has a lot of consumer and health care. The pandemic threatened a lot of consumer spending - even on health care.
When you discover that you are riding a dead horse, the best strategy is to dismount.

tibbitts
Posts: 10765
Joined: Tue Feb 27, 2007 6:50 pm

Re: Vanguard Dividend Growth

Post by tibbitts » Mon Jun 29, 2020 11:32 am

dukeblue219 wrote:
Mon Jun 29, 2020 11:22 am
Big tech was the place to be to avoid the broad crash in March. Dividend funds don't have much exposure to big tech aside from MSFT. That's probably part of it...
I don't think dividend growth funds necessarily choose stocks that pay dividends; they try to choose stocks that will increase dividends in the future, including going from zero to something. It's really all about prospects to increase dividends.

whereskyle
Posts: 917
Joined: Wed Jan 29, 2020 10:29 am

Re: Vanguard Dividend Growth

Post by whereskyle » Mon Jun 29, 2020 11:45 am

Trollope wrote:
Mon Jun 29, 2020 11:19 am
Vanguard Dividend Growth (VDIGX) usually performs well during downturns in the market. Not this year. Any thoughts?
As Vanguard spells out, "One of the fund’s risks is the possibility that returns from dividend-paying stocks will trail returns from the overall stock market during any given period."

The truth is that picking stocks based on perceived dividend growth is just as unreliable as picking stocks based on any other expectations of future returns. In a way, dividend growth investing relies on the castles in the air or greater fool theory. Dividend-growth stocks will be good stocks in market downturns so long as other investors believe that sticking with dividend-paying stocks is the right way to weather a bear market. This year, investors stuck with growth/tech stocks they perceived to be pandemic-resistant. What do you think will happen in the next downturn?
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

dbr
Posts: 32923
Joined: Sun Mar 04, 2007 9:50 am

Re: Vanguard Dividend Growth

Post by dbr » Mon Jun 29, 2020 12:01 pm

In Portfolio Visualizer between 1993 and 2019 the max drawdown on that dividend fund was about -40% and for the TSM about -50%. That would not be characterized as performing well during downturns in the stock market. The standard deviation of annual returns was 12% and 15% respectively. I would not characterize that as much of a difference. The distributions of returns of those two funds hugely overlap. Someone might do a statistical test of whether or not the historical sample would be able to say the returns even come from different populations with any statistical significance. I am sure it isn't even close that these distributions could be called different.

I think the idea that you have avoided some risks you wanted to avoid by selecting that fund is probably mistaken.

alex_686
Posts: 6375
Joined: Mon Feb 09, 2015 2:39 pm

Re: Vanguard Dividend Growth

Post by alex_686 » Mon Jun 29, 2020 12:05 pm

Trollope wrote:
Mon Jun 29, 2020 11:19 am
Vanguard Dividend Growth (VDIGX) usually performs well during downturns in the market. Not this year. Any thoughts?
Why would you think it would do well? Having formally studied the subject I can't think of a reason why.

Dividends are a notoriously bad factor. It is intuitive, but it indicates nothing. Like the "fact" that heavy objects fall faster than light ones. Lots of observations that prove this "fact", but if you look closer it just falls apart.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.

User avatar
anon_investor
Posts: 2338
Joined: Mon Jun 03, 2019 1:43 pm

Re: Vanguard Dividend Growth

Post by anon_investor » Mon Jun 29, 2020 12:28 pm

Trollope wrote:
Mon Jun 29, 2020 11:19 am
Vanguard Dividend Growth (VDIGX) usually performs well during downturns in the market. Not this year. Any thoughts?
It is interesting that the index version of this fund with the same strategy, Vanguard Dividend Appreciation Index Fund (VDADX/VIG) did better than VDIGX during the downturn. VDIGX only has 40 stocks, where as VDADX/VIG has 225, so maybe since the strategy was the same the underperformance was just bad stock picking?

whereskyle
Posts: 917
Joined: Wed Jan 29, 2020 10:29 am

Re: Vanguard Dividend Growth

Post by whereskyle » Mon Jun 29, 2020 12:30 pm

anon_investor wrote:
Mon Jun 29, 2020 12:28 pm
Trollope wrote:
Mon Jun 29, 2020 11:19 am
Vanguard Dividend Growth (VDIGX) usually performs well during downturns in the market. Not this year. Any thoughts?
It is interesting that the index version of this fund with the same strategy, Vanguard Dividend Appreciation Index Fund (VDADX/VIG) did better than VDIGX during the downturn. VDIGX only has 40 stocks, where as VDADX/VIG has 225, so maybe since the strategy was the same the underperformance was just bad stock picking?
Great point. Didn't notice it. VIG I think still outperformed the broader market during the downturn, but not by very much at all.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

User avatar
anon_investor
Posts: 2338
Joined: Mon Jun 03, 2019 1:43 pm

Re: Vanguard Dividend Growth

Post by anon_investor » Mon Jun 29, 2020 12:37 pm

whereskyle wrote:
Mon Jun 29, 2020 12:30 pm
anon_investor wrote:
Mon Jun 29, 2020 12:28 pm
Trollope wrote:
Mon Jun 29, 2020 11:19 am
Vanguard Dividend Growth (VDIGX) usually performs well during downturns in the market. Not this year. Any thoughts?
It is interesting that the index version of this fund with the same strategy, Vanguard Dividend Appreciation Index Fund (VDADX/VIG) did better than VDIGX during the downturn. VDIGX only has 40 stocks, where as VDADX/VIG has 225, so maybe since the strategy was the same the underperformance was just bad stock picking?
Great point. Didn't notice it. VIG I think still outperformed the broader market during the downturn, but not by very much at all.
VDADX/VIG definitely out performed VTSAX/VTI early on when the market was dropping, but when the market started to recover VTSAX/VTI did much better. Year to date (as of 6/26/2020) VTSAX/VTI is down around 6.3%, VDADX/VIG is down around 7.8% and VDIGX is down around 8.9%. By comparison Vanguard Growth Index Fund (VIGAX/VUG), which is heavily weighted in tech, is actually up almost 8% YTD, so as another poster mentioned the difference in weighting in tech (specifically the FAANGM stocks) might have a lot to do with the differences.

whereskyle
Posts: 917
Joined: Wed Jan 29, 2020 10:29 am

Re: Vanguard Dividend Growth

Post by whereskyle » Mon Jun 29, 2020 12:42 pm

anon_investor wrote:
Mon Jun 29, 2020 12:37 pm
whereskyle wrote:
Mon Jun 29, 2020 12:30 pm
anon_investor wrote:
Mon Jun 29, 2020 12:28 pm
Trollope wrote:
Mon Jun 29, 2020 11:19 am
Vanguard Dividend Growth (VDIGX) usually performs well during downturns in the market. Not this year. Any thoughts?
It is interesting that the index version of this fund with the same strategy, Vanguard Dividend Appreciation Index Fund (VDADX/VIG) did better than VDIGX during the downturn. VDIGX only has 40 stocks, where as VDADX/VIG has 225, so maybe since the strategy was the same the underperformance was just bad stock picking?
Great point. Didn't notice it. VIG I think still outperformed the broader market during the downturn, but not by very much at all.
VDADX/VIG definitely out performed VTSAX/VTI early on when the market was dropping, but when the market started to recover VTSAX/VTI did much better. Year to date (as of 6/26/2020) VTSAX/VTI is down around 6.3%, VDADX/VIG is down around 7.8% and VDIGX is down around 8.9%. By comparison Vanguard Growth Index Fund (VIGAX/VUG), which is heavily weighted in tech, is actually up almost 8% YTD, so as another poster mentioned the difference in weighting in tech (specifically the FAANGM stocks) might have a lot to do with the differences.
Thanks for doing the work to clarify the record on that point. If VIG is not going to do better than the market during downturns, I don't see why one would hold it because I don't see why it would do better when the economy is growing.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

User avatar
FrugalInvestor
Posts: 5513
Joined: Fri Nov 07, 2008 12:20 am

Re: Vanguard Dividend Growth

Post by FrugalInvestor » Mon Jun 29, 2020 12:45 pm

This is why we shouldn't try to hide in various corners of the stock market. We can't predict what is going to happen or what the ultimate effects will be. Instead we should stop searching for the needle and own the haystack.
Have a plan, stay the course, and simplify, and while you're at it, Ignore the Noise!

User avatar
anon_investor
Posts: 2338
Joined: Mon Jun 03, 2019 1:43 pm

Re: Vanguard Dividend Growth

Post by anon_investor » Mon Jun 29, 2020 1:15 pm

whereskyle wrote:
Mon Jun 29, 2020 12:42 pm
anon_investor wrote:
Mon Jun 29, 2020 12:37 pm
whereskyle wrote:
Mon Jun 29, 2020 12:30 pm
anon_investor wrote:
Mon Jun 29, 2020 12:28 pm
Trollope wrote:
Mon Jun 29, 2020 11:19 am
Vanguard Dividend Growth (VDIGX) usually performs well during downturns in the market. Not this year. Any thoughts?
It is interesting that the index version of this fund with the same strategy, Vanguard Dividend Appreciation Index Fund (VDADX/VIG) did better than VDIGX during the downturn. VDIGX only has 40 stocks, where as VDADX/VIG has 225, so maybe since the strategy was the same the underperformance was just bad stock picking?
Great point. Didn't notice it. VIG I think still outperformed the broader market during the downturn, but not by very much at all.
VDADX/VIG definitely out performed VTSAX/VTI early on when the market was dropping, but when the market started to recover VTSAX/VTI did much better. Year to date (as of 6/26/2020) VTSAX/VTI is down around 6.3%, VDADX/VIG is down around 7.8% and VDIGX is down around 8.9%. By comparison Vanguard Growth Index Fund (VIGAX/VUG), which is heavily weighted in tech, is actually up almost 8% YTD, so as another poster mentioned the difference in weighting in tech (specifically the FAANGM stocks) might have a lot to do with the differences.
Thanks for doing the work to clarify the record on that point. If VIG is not going to do better than the market during downturns, I don't see why one would hold it because I don't see why it would do better when the economy is growing.
VDADX/VIG did hold up better when the market was absolutely tanking in March 2020, so maybe there was some psychological benefit to that. I think these past 4 months are too small of a sample size to make any real conclusions. In 2018, VDADX/VIG (down around 2%) did hold up better than VTSAX/VTI (down around 5.2%). In 2019 VDADX/VIG (up around 29.7%) only performed a little bit worse than VTSAX/VTI (up around 30.8%).

Post Reply