Vanguard High Dividend Yield Index ETF (VYM)

Proposal: Buy 218 shares of (VYM) @ Market price in Hillenbrand with cash. Proposal Ranking: 4 This fund tracks a custom index built by Vanguard and FTSE (a company similar to the S&P but based in London that specializes in index calculation). The index begins with all stocks in the U.S. market tracked by FTSE, excluding only real estate investment trusts because they rarely pay more favorably taxed qualified dividends. FTSE removes all companies that did not pay out a dividend in the past 12 months from the potential constituent universe, and then ranks the remaining stocks by yield. This index comprises the highest-yielding of those remaining stocks that sum as much as 50% of the total market capitalization of potential constituents. In practice, this ends up producing an index of the highest-yielding third of the U.S. market. The FTSE High Yield Dividend Index is market-cap-weighted, so it incorporates market price information about the current state of businesses and sustainability of dividends. This also makes it easier for Vanguard to replicate the index without incurring taxable capital gains.

The Hillenbrand fund is currently underweighted in large value by $56,000 and this is the main target allocation for the fund. Since it has not been easy to find large value opportunities for the fund, I think the Vanguard High Dividend Yield Index ETF (VYM) would be a great core holding for Hillenbrand and it will also allow us to meet the funds target on alternative investments. It is also a very low risk ETF and it focuses on mature, large value, and high quality firms that pay high dividends. This might not yield leading returns in its category, but the extremely low expense ratio and above average returns is what makes (VYM) an attractive long term investment. https://personal.vanguard.com/funds/reports/sp923etf.pdf?2210066169 https://personal.vanguard.com/us/funds/snapshot?FundId=0923&FundIntExt=INT

Relevant Data: Hillenbrand NAV 2/12/13 Weight # of Shares 52 Week High 52 Week Low M* Fair Value M* Rating Holdings Style SEC Yield 12month yield Total Assets Expenses Turn Over Ratio $52.87 4% 218 $52.94 $45.00 52.91 4 Large Value 3.15% 3.05% 4.9 B 0.13% 11%

Strengths - According to Morningstar the current yield is at 3.1%. It's historically yielded one percentage point more than the S&P 500 Index - It is among the lowest-priced dividend ETFs in the U.S - Dividends are the main driver of historical returns - Low turnover ratio Weaknesses - Only focuses on historically high-dividend-paying stocks - There were several large inflows detected in 2012 sometimes entering oversold territory

Opportunities - A diversified mix of some of the best dividend payers in the US -Cheaper than 90% of its peers and fees make an enormous difference to long-term investment returns - Dividend ETFs are always a good investment for an uncertain market

Threats - High concentration risk since the fund tends to invest a high percentage of assets in its ten largest holdings -As with Mutual Funds, a few years of outperformance is close to meaningless in predicting future performance - The market is full of good dividend ETFs making it hard for VYM to beat its peers

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Sources: https://www.vanguard.com https://www.fidelity.com http://www.morningstar.com https://www.fool.com http://finance.yahoo.com http://www.seekingalpha.com