With iShares’ phenomenal line of low-cost index funds, it can be hard to find the right fund for you. That’s why I have taken it upon myself to compare two of the most popular ETFs by iShares in this article: IVV vs. ITOT. So, what exactly is the difference between these two, and which fund performs better?
IVV and ITOT are both large blend exchange-traded funds. In terms of market cap, IVV is about seven times as big as ITOT although both funds have an identical turnover rate of 5% annually. At 1.28% IVV has a slightly higher dividend yield than ITOT at 1.20%, however, both funds have the same low expense ratio of 0.03%.
In this post, I’ll go over some of the basic facts and figures that make up the differences and similarities between IVV and ITOT. We’ll also look at some more advanced metrics such as drawdowns and volatility to determine which of these two funds is the right one for you.
IVV vs. ITOT – Overview
What’s The Difference?
|Category||Large Blend||Large Blend|
IVV is a Large Blend ETF. Large blend ETFs tend to be large-cap funds that hold a majority of the available stock in the market. Typically these include S&P 500 ETFs such as IVV but also other large market segment funds or total market funds.
ITOT is a Large Blend ETF. ITOT is a total stock market fund and is comprised of all the stocks that are currently traded publicly in the United States. In this regard, it is comparable to Vanguard’s VTI fund which also falls into the large blend category.
IVV and ITOT are issued by iShares. Both of the funds we are talking about today are issued by the same company: iShares. As part of BlackRock iShares has access to billions of dollars of capital which makes it one of the largest asset management firms out there.
Assets Under Management
IVV has 294.95B total assets under management. When it comes to the total assets under management that these two funds hold IVV far outperforms ITOT and has proven much more popular with investors in the past. However, the only reason for this might be that S&P 500 ETFs were simply first to market before larger blend funds were available.
ITOT has 41.97B total assets under management. With over 40 billion dollars of capital invested in ITOT this fund still makes it into the top 10 of largest ETFs by market cap. And while it’s not as famous as IVV, as we will see later, it may have more to offer to index fund investors.
IVV has a Year-to-date return of 19.99%. In terms of recent returns, IVV has actually outperformed ITOT by a whole percentage point over the past 12 months. This is largely due to the fact that big tech companies have done exceedingly well during the pandemic while smaller businesses have struggled.
ITOT has a Year-to-date return of 18.96%. Although slightly behind the returns of IVV, ITOT can nonetheless boast a return of nearly 19% YTD. This makes the current year one of the best performing years of all time for ITOT.
IVV has a dividend yield of 1.28%. Dividends yields are low across the entire stock market. As a dividend investor, it does not seem appealing to invest in either one of these two funds with yields under 1.30% for IVV and ITOT.
ITOT has a dividend yield of 1.20%. ITOT, however, has an even lower dividend yield than IVV due to its larger exposure to small-cap stocks that tend to pay less in dividends and invest more in growth.
IVV and ITOT have an expense ratio of 0.03%. When comparing ETFs the first thing I usually look for is their expense ratio. If this number is too high investing does not make much sense no matter how good the fund is since fees will slowly chip away at those returns.
But IVV and ITOT both have extremely low expense ratios of just 0.03% making them ideal long-term passive investments!
Let’s look at what’s actually inside each of these two funds. And we will do this by taking a broad snapshot of stocks by market cap and by industry sectors in IVV and ITOT. Although the differences might be slight here are some of the things to be aware of:
Since IVV is an S&P 500 ETF it naturally does not hold any small-cap companies. The top 500 stocks in the United States are only comprised of large- and mid-cap firms. With this in mind, we can see from the pie chart above that large-cap companies make up 85% of IVV while mid-cap stocks only make it to 15%.
With ITOT the picture looks a bit different: here we include small-cap stocks in the fund which shifts the balance of power between different stock categories dropping exposure to large-cap stocks to 73%, mid-cap to 19%, and adding 8% of small-cap stocks.
This means you’ll also capture the long tail of the market with ITOT, those additional 2,500-3,000 small-cap companies that are not included in the S&P 500.
The industry exposure for IVV looks fairly predictable with big tech dominating the fund at around 25% or one-quarter of the total assets. Far behind are financial services and healthcare stocks at 14% and 13% respectively.
Minor allocations are made to energy companies, utilities, and real estate at just under 3% each.
For ITOT the tech domination is the same: a bit less than 25% of the fund’s assets come from the technology sector. However, there are some slight differences.
Industrials make up a higher percentage of assets in ITOT compared to IVV. Also, real estate at 3.67% is above IVV’s exposure to the sector of real assets. This makes ITOT overall a bit more diversified than IVV.
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IVV vs. ITOT – Analysis
In this part of the article, we will cover a more detailed analysis of both funds in terms of their risk metrics. Here’s an overview of IVV’s and ITOT’s means, volatility, downside deviation, drawdown, and U.S. market correlation.
|Arithmetic Mean (monthly)||$0.01||$0.01|
|Arithmetic Mean (annualized)||11.58%||11.74%|
|Geometric Mean (monthly)||0.83%||0.84%|
|Geometric Mean (annualized)||10.41%||10.50%|
|Downside Deviation (monthly)||2.80%||2.90%|
|US Market Correlation||1||1|
In terms of volatility, IVV sways about 4.19% up and down every month and up to 14.54% annually. This broadly reflects the ups and downs of the entire stock market. ITOT has comparable volatility which is actually a bit higher than IVV’s due to the greater fluctuations in the small-cap stock segment.
As you might have expected the drawdowns for both funds are nearly identical. The only real difference that can be seen in the chart above comes from the time period of 2011 to 2021 where IVV actually experienced greater drawdowns than ITOT.
For the remaining 15 years that we are comparing here the lines pretty much overlap indicating the similarity between both funds.
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IVV vs. ITOT – Performance
But on to the most interesting part of this ETF comparison: the performance. Which fund would have yielded higher returns? Which one would have performed better over time?
To answer this question I have set up a portfolio backtest that compares IVV’s and ITOT’s performance over the past 16 years starting in 2005.
Similar ups and downs over the years can be seen for both funds in the chart above. Slight differences occurred in 2008 when the market crashed. Here ITOT outperformed IVV (or had slightly less terrible returns) again due to its exposure to small-cap stocks which seem to have buffered the blow.
There are also some years then IVV did better than ITOT notably 2021, 2019, 2017, and 2006. However, the years with ITOT doing better than IVV seem to be more frequent.
|Portfolio||Initial Balance||Final Balance||CAGR|
When looking at the actual cumulative numbers the above suspicion is confirmed: ITOT outperformed IVV over the past 16 with a CAGR (compound annual growth rate) of 10.5% compared to IVV’s 10.41%.
This means that investors in ITOT would have seen their portfolio grow by 0.09% more every year than investors in IVV.
However, both funds would have been excellent investment choices and the differences appear minor when looking at the final balances of each fund.
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Index investing is popular for a reason, it works! As analytically minded investors we tend to over-analyze each fund’s performance while in reality just picking one single broad market fund and stocking with it probably would have yielded the same of even better results than over-thinking our fund choice.
Whether you choose ITOT or IVV for your portfolio will likely not matter in the long run. Both funds give you broad exposure to the U.S. stock market at low fees. So, which one you choose just comes down to availability and personal preference.
If you are interested, you can read more about my own investment strategy in my author bio just below this post.
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