Vanguard's most popular index funds include the Vanguard Total Stock Market ETF (NYSEARCA: VTI), the Vanguard Total International Stock ETF (NASDAQ: VXUS) and the Vanguard Total Bond Market ETF (NYSEARCA: BND). These exchange-traded funds (ETFs) are also available as mutual funds.
Vanguard is a leader in the field, having created the first index fund in 1976. The company is the largest issuer of mutual funds and the second largest issuer of ETFs in the world. The company’s funds and ETFs are known for their low expense ratios and transparent management.
Advantages of Index Funds
Index investing offers investors a low-cost and easy way to gain exposure to broad sectors of the market. These funds are passively managed and track a benchmark index. Most active funds tend to underperform the S&P 500 and have higher costs than index funds. Warren Buffett, one of the greatest investors of all time, is a fan of index funds for most investors who do not have a lot of time to spend researching the market. Buffett allegedly told Jack Bogle, the founder of Vanguard, that a low-cost index fund is the most sensible equity investment that most investors can make.
Vanguard Total Stock Market ETF
The Vanguard Total Stock Market ETF is a broad fund that seeks to track the performance of large-, mid- and small-cap stocks. It is passively managed. It has an extremely low expense ratio of 0.05%, which is 95% lower than the average expense ratio of funds with similar holdings. VTI holds over 3,800 stocks in its portfolio with a median market cap of $46.5 billion as of September 2015. It is widely diversified across the spectrum of equities. The 10 largest holdings comprise 14.5% of the overall market. Financial services is the market sector with the highest weighting, at 19.5%. This is followed by the technology sector, with a 16% weighting. Apple is the largest individual holding, with a 3% weighting.
VTI has over $371 billion in assets under management (AUM) as of Sept. 30, 2015. It pays a dividend yield of 1.9%. The fund has a standard deviation of 9.92% and a beta near 1. VTI has essentially the same volatility and risk as the broader stock market.
Vanguard Total International Stock ETF
The Vanguard Total International Stock ETF tracks the performance of the FTSE Global All Cap ex U.S. Index. This benchmark index measures the performance of stocks issued by companies located outside of the United States. It provides broad exposure across a wide array of developed and emerging non-U.S. equity markets. It is also passively managed.
VXUS has $174.6 billion in AUM as of September 2015. There are over 6,000 stocks in the fund’s portfolio. The 10 largest holdings have a portfolio weighting of 8.1%. The largest holding is Nestle SA, with a weighting of 1.3%. The fund has an expense ratio of 0.14%, which is extremely low, considering the number of international holdings it has.
Vanguard Total Bond Market ETF
The Vanguard Total Bond Market ETF provides broad exposure to the U.S. investment-grade bond market. The fund has a low expense ratio of 0.07%, which is 91% lower than the average for similar funds. BND holds over 7,700 bonds. Over 64% of the bonds in the portfolio are issued by the U.S. government.
BND pays an SEC yield of 2.12% as of October 2015. The fund has an average effective maturity of 7.9 years, with an average duration of 5.7 years. The fund has net assets of $147 billion. The fund has very low volatility with a standard deviation of 3%. Vanguard notes the fund is good for investors seeking steady income and also for diversifying stock holdings.