The Vanguard Total Stock Market ETF (VTI 0.22%) and the Vanguard S&P 500 ETF (VOO 0.14%) share some similar features in terms of configuration, pricing, and performance. But, their intended audiences actually differ quite a bit.
For instance, while one fund holds around 500 stocks, the other has more than 3,500. This key difference isn’t immediately apparent until you dig deeper, though it can significantly influence investment choices, particularly in a downturn.
Key Points
- A major distinction: VOO targets just one category of large-cap stocks, whereas VTI diversifies across large, mid, and small-cap stocks.
- Both ETFs are market-cap weighted, leading to similar portfolio structures. That said, VTI’s inclusion of small-cap stocks provides greater diversification.
- In market conditions where mega-cap tech stocks aren’t driving growth, VTI tends to shine more.
- On the other hand, if the market drops, VOO might perform better, especially if small-cap stocks struggle more than large-cap ones.
Understanding VOO and VTI: Construction and Differences
Both funds are heavily correlated since they are market-cap weighted portfolios of US stocks. However, the Vanguard Total Stock Market ETF includes approximately 3,000 additional companies, beyond the constituents of the S&P 500.
There’s about an 88% overlap between the two, with the Vanguard Total Stock Market ETF allocating 12% to small and mid-cap stocks, unlike the S&P 500 ETF. The resilience of each fund during downturns largely depends on the performance of these smaller investments.
VOO and VTI: Performance and Metrics
| Metric | VOO | VTI |
|---|---|---|
| Expense Ratio | 0.03% | 0.03% |
| Assets Under Management | $910 billion | $615 billion |
| Dividend Yield | 1.2% | 1.2% |
| Average Annual Return (10 years) | 15% | 14.5% |
| Holdings | 504 | 3,507 |
| Top Holding Stocks | NVIDIA (7.6%), Apple (6.7%), Microsoft (4.9%) | NVIDIA (6.4%), Apple (5.9%), Microsoft (4.4%) |
Data source: Vanguard.
The variance in performance between these ETFs is primarily attributed to the significant gains in mega-cap tech stocks in recent years, driven largely by the artificial intelligence (AI) surge. Both funds feature large investments in certain leading companies, though the S&P 500 fund leans more heavily here, as indicated by their top holdings.
Typically, during market downturns, small-cap stocks underperform relative to large-caps. While both categories usually decline, investors often gravitate towards the stability of more established firms. Small-cap stocks are often seen as riskier and less profitable, which isn’t where most investors want to place their money when times are tough.
With all of this in mind, it might make sense to consider the Vanguard S&P 500 ETF during challenging market conditions, as it maintains relatively robust holdings that could offer modest performance improvements.
