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Tracking the Performance of the US Total Market Index with Vanguard’s ETF

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The Vanguard Total Stock Market ETF (VTI), started in 2001, has returned 7.3% to investors.


The ETF is well diversified, holding over 3,500 stocks from the US equity market, including small-, mid- and large-cap companies. It is weighted towards the technology sector, with its top four holdings being Microsoft (NASDAQ:MSFT) at 3.6%, Apple (NASDAQ: AAPL) at 3.4%, Google (NASDAQ:GOOG) at 2.5% and Amazon (NASDAQ:AMZN) also at 2.5% – together these stocks make up 9.5% of the ETF.

21.2% of the shares are from the technology sector, 19.8% in the financial sector and 13.4% in consumer services.

The fund’s recent performance has been good; the larger bull run for equities has produced a one-year return of 13.58%, and the five-year return is 10.3%.

It is a low cost way to get exposure to the whole of the US equity market, because it tracks it very closely with a low expensive ratio of just 0.03%.

The median market cap of the stocks held by the fund is $76.9 billion. The stocks have a weighted average price-to-earnings ratio (P/E) of 20.9; this is calculated by taking the current market value of a share in a company and dividing it by the dividend per share. The weighted average of the price-to-book ratio (P/B) is 3.0; this is calculated by dividing the share price by the total liabilities minus intangible assets and liabilities.

The Vanguard Total Stock Market ETF is managed in a passive manner and is an open-ended fund, with an expense ration of just 0.03%, which is extremely low for this type of fund. The fund’s low turnover rate of 3.4% means that transaction costs do not eat into the fund’s holdings. Long-term investors in the fund will find the low expense ratio particularly beneficial.

The fund is issued by Vanguard and advised by the Vanguard Equity Investment Group, and is traded on the New York Stock Exchange. As of November 2019, shares traded around $159, with an average daily volume of 2.4 million shares. This indicates that the ETC has a great deal of liquidity. Investors who buy shares through Vanguard Brokerage Services will be charged no commission.

The fund is very well diversified, with its large amount of holdings reflecting the whole universe of investable US securities. The fund includes small-cap stocks which can be volatile. Compared to the larger market, the fund has a beta of 1. This means its risk matches that of the entire market; the value of the fund is likely to be affected by a larger downturn in the US or world economy.

The fund would suit a growth portfolio since it allows exposure to the larger universe of US equities in one low-cost fund.

Portfolios need to be balanced with other assets that are not as correlated to the stock market, to help minimize portfolio risk.


Note: all data is as of 20 November 2019

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