Vanguard Total Stock Market funds offer highly-efficient, well-diversified and accurate exposure to the entire U.S. stock market, while charging rock-bottom fees—a recipe for success over the long run. 

The funds track the CRSP US Total Market Index, which represents approximately 100% of the investable U.S. opportunity set. The index weights constituents by market cap after applying liquidity and investability screens to ensure the index is easier to track. 

Market-cap weighting forms the bedrock of this strategy, which harnesses the market’s collective wisdom of each holding’s relative value with the added benefit of low turnover and trading costs. It’s a sensible approach because the market tends to do a good job pricing the large-cap stocks that make up the bulk of this portfolio. Large-cap stocks attract liquidity and widespread investor attention such that prices quickly reflect new information.  

Total-market funds mitigate transaction costs because they don’t target specific segments of the market and aren’t prone to forced buying or selling when stocks enter or exit a market segment. Still, a small amount of turnover can occur at the lower rungs of the portfolio. The index implements buffer rules around its lower market-cap bound to limit unnecessary turnover since dealing in thinly traded small and micro-caps can increase transaction costs. The index further reduces trading costs by spreading rebalancing trades over several days to limit market impact costs. 

The index includes small- and micro-cap stocks, which improve the end portfolio’s diversification and can provide a performance edge when small caps rally, as they did in the fourth quarter of 2020. They tend to be more volatile than large-cap stocks but have minimal impact given that they make up less than 10% of the portfolio. 

Market-cap weighting may expose the strategy to stock- or sector-level concentration risk when a few richly valued companies or sectors power most of the market gains, such as year-end 2023. As of November 2023, the top 10 holdings made up the largest portion of the index (27%) since its 2011 inception. Likewise, the 28% allocation to tech stocks was the highest over the same period. But this is not a fault in design: The CRSP US Total Market Index simply reflects the market’s composition. In the long run, its broad diversification, low turnover, and low fee outweigh these risks.

This report was updated to clarify information about the Australian listing of the fund.

Analyst Rating

A one-stop shop for all U.S. stocks.

Associate Analyst

Mo'ath Almahasneh

Microsoft

Apple

NVIDIA

Amazon

Alphabet

Berkshire Hathaway Inc. - Ordinary Shares - Class B

Eli Lilly

Broadcom

This strategy constructs a broadly diversified portfolio that accurately captures the entire investable U.S. equity market. It also keeps a lid on turnover by leveraging the market’s collective wisdom to size its positions. These simple yet effective traits earn a High Process Pillar rating.

These funds hold a sample of stocks that represent the CRSP US Total Market Index, but it includes nearly the same number of constituents and closely mimics its characteristics. The index ranks all U.S. stocks by their float-adjusted market cap after they pass basic liquidity and volume screens to ensure investability and easier tracking. Eligible stocks must have a market cap of at least $15 million and at least 12.5% of total shares publicly available. The index implements buffers along the lower market-cap bound to mitigate unnecessary turnover. It also spreads the rebalancing process over a five-day period to reduce potential market impact costs. The index reconstitutes quarterly.

High

Process

The portfolio managers on these funds are part of Vanguard’s Equity Index Group. This global team has topnotch resources and technology that support tight tracking of the fund’s target index. They earn an Above Average People Pillar rating.

The Asia-Pacific and North American teams are integrated and use the same processes and systems. This ensures broad knowledge globally and provides continuity in contingency scenarios. 

Gerard O’Reilly, Michelle Louie, and Walter Nejman comanage the U.S. funds. O’Reilly, a principal at Vanguard, has been with the firm since 1992. Louie has been with the firm since 2010 and has managed portfolios since 2014. Nejman joined the firm in 2005 and worked in investment management since 2008. Duncan Burns oversees the Australian listing of the fund. He heads the Asia-Pacific equity index group and is a member of the Australian executive team.  

Portfolio managers not only oversee the portfolio but also execute trades on a day-to-day basis. Vanguard typically rotates portfolio managers around from one fund to another every few years to improve their breadth and depth of expertise. They also have access to Vanguard’s global trading desks, enabling them to make the most cost-efficient transactions in various global markets.

Vanguard’s portfolio managers are compensated with a bonus that factors in the gross, pretax performance of the fund relative to its objectives. This includes the manager’s record of tracking a benchmark index over the prior 12 months. These characteristics align the interests of the managers and investors.

Above Average

People

As The Vanguard Group settles on new senior leadership, it retains a High Parent rating.

Vanguard announced current CEO Tim Buckley will step down by the end of the year, marking an end to his 33 years at the firm. Historically, Vanguard has pronounced CEO retirements while simultaneously signaling who (from inside the firm) would take over. In this instance, Vanguard’s board said it will evaluate internal and external candidates in the coming months to find its next, and fifth, leader, though it also promoted CIO Greg Davis to president.

Vanguard flourished in several respects under Buckley’s leadership. Assets under management have grown by two thirds over his six years at the helm, while its asset-weighted average US fund fee ratcheted lower to 0.08% at the end of 2023. Vanguard further refined its advice business through its low-cost Digital Advisor platform and more holistic Vanguard Personal Advisor Services, and it debuted promising investment options.

Vanguard has had its share of challenges under Buckley, too. Growing its business outside the US has proved difficult, and ex US investors account for less than 10% of AUM. Between 2019 and 2023, Vanguard’s efforts to build its China business underwent dramatic shifts, with the firm ultimately abandoning plans to launch low-cost index funds there. It also ended a partnership with Ant Financial to provide advisory services to retail investors. Inside the US, customer service issues have continued to be a problem, and some of Vanguard’s newer offers, such as margin loans, seem a departure from a more-conservative approach to investing.

Vanguard retains an investor-friendly culture at its core that’s burnished by a commitment to low costs and supported by its unique mutual ownership structure and direct-to-investor playbook.

Parent

Vanguard Total Stock Market ETF

VTI tracks a cap-weighted index that measures the investable US equities market, encompassing the entire market-cap spectrum.

The fund seeks to track a market-cap-weighted portfolio that provides total market exposure to the US equity space.

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