The Vanguard Total Stock Market ETF (VTI) tracks the performance of the CRSP U.S. Total Market Index. The fund has returned 8.86% since its inception in 2001 (as of July 31, 2021). The fund is a market capitalization-weighted index that measures the entire investable U.S. equity market. It includes small-, mid-, and large-cap companies. The fund is managed in a passive manner and uses an index-sampling strategy.
Key Takeaways
- The Vanguard Total Stock Market ETF is a well-diversified exchange-traded fund (ETF) that holds over 3,900 stocks.
- The ETF’s top sector is technology, with a 27.7% weighting, while Microsoft, Apple, and Alphabet are its top three holdings, making up 13.2% of the ETF.
- It has a low expense ratio (0.03%) and tracks the broader stock market very closely (beta of 1), making it a low-cost way to get exposure to the U.S. equity market.
The fund has over 3,900 stocks in its portfolio, a massive amount for an ETF. The median market cap of the fund's holdings is $131.1 billion. The weighted average price-to-earnings (P/E) ratio for the portfolio is 24.5, with a price-to-book (P/B) ratio of 4.2. The P/E ratio takes the current market value of companies' shares divided by the earnings per share (EPS). The P/B ratio takes the share price divided by the total liabilities minus intangible assets and liabilities.
The technology sector has the highest weighting in the fund at 27.7%, followed by the consumer discretionary sector with a weighting of 15.7%. The industrial care sector is in third with a weighting of 13.9%.
Apple (AAPL) is the largest holding with a 5.1% weighting, followed by Microsoft (MSFT) with a 4.7% weighting. Alphabet (GOOGL) is the third-largest holding with a weighting of 3.4%, while Amazon (AMZN) is fourth with a 3.2% weighting. The top 10 holdings had a combined weighting of 23.6% (As of July 31, 2021).
Characteristics
The Vanguard Total Stock Market ETF is an open-ended fund issued by Vanguard and advised by the Vanguard Equity Investment Group. The fund is a passive index fund and therefore has a remarkably low expense ratio of 0.03%. The fund has a relatively low turnover rate of 8%, meaning that there are limited transaction costs for changing the fund's holdings. The expense ratio does not include any commissions or brokerage fees. The low expense ratio is beneficial for long-term investors in the fund.
Shares are trading around $228 as of August 2021. The fund has an average daily volume of 3.5 million shares, indicating that there is a great deal of liquidity in the ETF. VTI shares trade on the New York Stock Exchange. Investors can buy shares with no commission through Vanguard Brokerage Services.
Suitability and Recommendations
VTI is an extremely diversified fund. Its large amount of holdings reflect the entire universe of investable U.S. securities. The fund has exposure to small-cap stocks which can be more volatile than mid- or large-cap holdings. The fund has a beta of 1 when compared to the larger market. The fund has exposure to systematic risk, which is the risk inherent in the entire market. A larger downturn in the U.S. economy or the world economy is likely to impact the value of the fund.
The fund has performed well recently following the larger bull run for equities. VTI has a one-year return of 38.98% with a five-year return of 17.39%. This ETF appears to be a solid security to hold in a growth portfolio since it reflects the larger universe of U.S. equities in a low-cost single fund. Investors need to include other assets that are not as correlated to the stock market so they can balance their portfolios. Pursuant to the tenets of modern portfolio theory, holding non-correlated assets can help to minimize portfolio risk.
The Vanguard Total Stock Market ETF (VTI) is a remarkable investment vehicle that mirrors the CRSP U.S. Total Market Index, enabling investors to participate in the entire spectrum of the U.S. equity market. This ETF boasts an impressive track record, exhibiting a return of 8.86% since its inception in 2001. Its passive management style and market capitalization-weighted approach provide exposure to over 3,900 stocks across small, mid, and large-cap companies.
One key aspect is its sectoral allocation, with technology dominating the portfolio at 27.7%. This sectoral emphasis aligns with the current market trends, with top holdings like Microsoft, Apple, and Alphabet accounting for 13.2% of the ETF. The low expense ratio of 0.03% is a standout feature, keeping costs minimal for investors.
The fund's diversification is staggering, holding a massive number of stocks with a median market cap of $131.1 billion. Metrics like the price-to-earnings (P/E) ratio at 24.5 and a price-to-book (P/B) ratio of 4.2 provide insights into the valuation of the portfolio's holdings.
Additionally, it's crucial to note that despite its expansive diversification, VTI is not immune to market risks. Its beta of 1 reflects its alignment with market movements, implying susceptibility to broader economic shifts.
From a strategic perspective, combining VTI with non-correlated assets can be prudent, adhering to modern portfolio theory principles to mitigate overall portfolio risk. The fund has demonstrated impressive returns, with a one-year return of 38.98% and a five-year return of 17.39%. However, prudent portfolio management suggests the inclusion of assets less correlated to the stock market for a balanced investment approach.
The ETF's liquidity, evidenced by its average daily volume of 3.5 million shares, indicates strong tradability, and its availability on the New York Stock Exchange simplifies access for investors. Considering its broad exposure, low expense ratio, and historical performance, VTI emerges as a solid choice for investors seeking comprehensive exposure to the U.S. equity market.
This comprehensive analysis underscores the compelling attributes of the Vanguard Total Stock Market ETF, positioning it as an attractive option for inclusion in a diversified investment portfolio.
