Investing in passive index funds has become increasingly popular because of their ability to offer higher returns in the long run at relatively low costs. By holding the same stocks in the same proportions, these funds aim to mimic the performance of a specific index.
As one of the largest asset managers globally, Vanguard is highly trusted among investors who are looking for reliable market returns. Vanguard also offers low-cost investing in addition to providing transparency and client-centered service. In this article, we compare two Vanguard ETFs, VOO and VTI, to help investors decide which fund is more suitable.
What is VOO & VTI ETFs?
The Vanguard S&P 500 ETF (VOO) and Vanguard Total Stock Market ETF (VTI) are two prominent offerings that capture different aspects of the U.S. stock market. VOO focuses on the well-known S&P 500 index, which comprises 505 large-cap U.S. stocks, reflecting about 80% of the U.S. market capitalization. On the other hand, VTI provides broader exposure, including over 3,500 stocks ranging from large-cap to small-cap, representing nearly the entire U.S. stock market.
VOO: Vanguard S&P 500 ETF
VOO tracks the S&P 500 index and is designed to mirror its performance closely. The fund was established on September 7, 2010, and has since offered investors a straightforward way to gain exposure to 505 of the largest U.S. companies.
VOO holds exactly the constituents of the S&P 500, weighted by market capitalization. This includes top firms across various sectors, ensuring that investors are well-diversified within the large-cap space.
Top 10 Stock Holdings:
| Symbol | Company Name | Allocation |
|---|---|---|
| MSFT | Microsoft Corporation | 7.08 % |
| AAPL | Apple Inc | 5.63 % |
| NVDA | NVIDIA Corporation | 5.05 % |
| AMZN | Amazon.com Inc | 3.73 % |
| META | Meta Platforms Inc. | 2.42 % |
| GOOGL | Alphabet Inc Class A | 2.01 % |
| BRK-B | Berkshire Hathaway Inc | 1.73 % |
| GOOG | Alphabet Inc Class C | 1.70 % |
| LLY | Eli Lilly and Company | 1.40 % |
| AVGO | Broadcom Inc | 1.32 % |
VOO stands out due to its low expense ratio of 0.03% and its efficient tracking of the S&P 500 index. Over the past year, VOO has seen a capital gain of 24.74% and a total return of 26.47%. These figures reflect VOO’s robust performance in a dynamic market environment.
VTI: Vanguard Total Stock Market ETF
Established on May 24, 2001, VTI aims to track the performance of the CRSP US Total Market Index. It is designed for investors seeking comprehensive exposure to the U.S. stock market, including small, mid, and large-cap growth and value stocks.
VTI includes a much broader range than VOO, with over 3,500 stocks in its portfolio, offering extensive diversification beyond the large-cap stocks typically found in the S&P 500. While both ETFs are designed for those seeking exposure to U.S. equities, VTI’s broader diversification includes significant mid-cap and small-cap stock positions, which can lead to different performance characteristics, particularly in volatile markets.
Top 10 Stock Holdings:
| Symbol | Company Name | Allocation |
|---|---|---|
| AAPL | Apple Inc | 6.21 % |
| MSFT | Microsoft Corporation | 6.15 % |
| AMZN | Amazon.com Inc | 3.03 % |
| NVDA | NVIDIA Corporation | 2.34 % |
| GOOGL | Alphabet Inc Class A | 1.80 % |
| META | Meta Platforms Inc. | 1.64 % |
| GOOG | Alphabet Inc Class C | 1.51 % |
| BRK-B | Berkshire Hathaway Inc | 1.49 % |
| TSLA | Tesla Inc | 1.33 % |
| UNH | UnitedHealth Group Incorporated | 1.21 % |
VTI reported a one-year capital gain of 24.67% and a total return of 26.43%, slightly underperforming VOO in a comparable period.
VOO vs VTI: Key Differences
Here are the key differences between VOO and VTI:
1. Comparison of Top 10 Stock Holdings
Both ETFs share a significant overlap in their top holdings, primarily dominated by major technology and consumer companies. However, the weightage of these holdings is more concentrated in VOO due to its focus on large-cap stocks.
2. Diversification and Exposure to Different Sectors:
VTI offers greater diversification with its inclusion of stocks across all market caps, which may appeal to investors looking for broad market exposure in a single investment.
3. Impact of Market Cap Weighting on the Holdings
VOO’s market cap weighting means it is more influenced by the performance of the largest U.S. companies, whereas VTI’s broader index reduces this impact, offering a more balanced approach across various sectors and company sizes.
Performance Comparison between VTI & VOO:
Here is the top performance comparison of VTI and VOO:
1. Analysis of Historical Performance:
Historically, VOO has shown slightly better performance metrics in terms of returns and lower volatility compared to VTI, largely due to the stable nature of large-cap stocks.
Read More: The Best Canadian ETFs for Investors
2. Volatility Comparison between VOO and VTI:
VOO tends to be less volatile, as indicated by its lower beta of 1.00 compared to VTI’s beta of 1.04, aligning with its large-cap orientation.
3. Evaluation of Risk and Return Trade-offs:
Investors considering risk and return trade-offs need to assess their comfort with volatility versus their desire for potentially higher returns offered by a broader market exposure through VTI.
Conclusion:
Both VOO and VTI are excellent options offered by Vanguard, each with distinct characteristics suited to different investment goals. VOO is ideal for those seeking stability and performance closely tied to the U.S.’s largest companies, while VTI is better for those looking for comprehensive market exposure. But make sure your choice between VOO and VTI should be guided by your investment objectives, risk tolerance, and time horizon.
