The Vanguard Total Stock Market ETF (VTI) tracks the performance of the CRSP U.S. Total Market Index. The fund has returned 7.12% since its inception in 2001 (as of May 2020). 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 3,500 stocks. 
  • The ETF’s top sector is technology, with a 21.2% weighting, while Microsoft, Apple, and Amazon are its top three holdings, making up 12.6% 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 3,500 stocks in its portfolio, a massive amount for an ETF. The median market cap of the fund's holdings is $89.6 billion. The weighted average price-to-earnings (P/E) ratio for the portfolio is 20.9, with a price-to-book (P/B) ratio of 2.8. 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 24.7%, followed by the financial sector with a weighting of 16.9%. The health care sector is in third with a weighting of 14.8%. 

Microsoft (MSFT) is the largest holding with a 4.8% weighting, followed by Apple (AAPL) with a 4.1% weighting. Amazon.com (AMZN) is the third-largest holding with a weighting of 3.7%, while Alphabet (GOOG) is fourth with a 2.8% weighting. The top 10 holdings had a combined weighting of 22.9% (As of April 2020).

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 very low turnover rate of 4.1%, 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 $163 as of June 2020. The fund has an average daily volume of 2.6 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 11.46% with a five-year return of 9.17%. 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.