When it comes to ETFs iShares and Vanguard are two of the biggest competitors out there. Today we’ll take a look at some of their most popular funds to once and for all decide which fund is better IVV or VTI? And what are the differences?
IVV and VTI are both large blend ETFs, meaning they include a diverse part of the U.S. stock market in their holdings. Both funds have an expense ratio of 0.03%. However, VTI is significantly larger at 1.26 trillion dollars in market cap vs. IVV’s 300 billion dollars.
We will not only look at the high-level specs but also dive a bit deeper into some of the more hidden metrics and differences that make an investment in IVV or VTI worthwhile. Let me just start off by saying that I would consider both of these funds to be very suitable for long-term passive index investing.
IVV vs. VTI – Overview
What’s The Difference?
|Category||Large Blend||Large Blend|
IVV is a Large Blend ETF. As mentioned before IVV is a large blend fund that is comprised of a diverse range of industries and holds around 500 US securities. It closely tracks the S&P 500 index which itself tracks the top 500 publicly traded US companies by market cap.
VTI is a Large Blend ETF. VTI has a similar approach in that it also tracks a broad market index. The difference here is that VTI is a total stock market fund, meaning it includes every company in its holdings regardless of its market cap.
IVV is issued by iShares. iShares – the asset management firm from BlackRock – is one of the largest fund issuers on the market and just behind Vanguard when it comes to total assets under management.
VTI is issued by Vanguard. Vanguard has long been the trusted place for investors to keep their funds safe and growing. Vanguard’s unique corporate structure gives investors more control over the managing company and protects retail investors from third-party risks.
Assets Under Management
IVV has 294.95B total assets under management. When it comes to AUM IVV is one of the top players out there holding nearly 300 billion dollars of investor’s funds. This places IVV firmly in the top 5 ETFs by market cap.
VTI has 1.26T total assets under management. However, VTI is the true goliath in this comparison with around 1.26 trillion dollars under management. In fact, there are not many funds that get larger than this!
IVV has a Year-to-date return of 19.99%. With YTD returns close to 20% this has been a phenomenal year for every S&P 500 ETF such as IVV. Most of the returns, however, are recovery moves from pre-pandemic levels.
VTI has a Year-to-date return of 18.96%. VTI comes in just behind on the YTD returns returning about 1% less than IVV over the past 12 months. We will examine later if this trend is likely to continue or even out in the long run.
IVV has a dividend yield of 1.28%. Dividend yields for both funds are fairly low at the moment ranging from 1-2%. IVV currently has a slightly higher yield than VTI at 1.28% and with stock market prices at all-time highs, this is unlikely to change any time soon.
VTI has a dividend yield of 1.26%. VTI has a comparable dividend yield of 1.26% and just below that of IVV. This is largely due to the fact that larger-cap companies have been more willing to pay out earnings as dividends now that the pandemic situation has stabilized.
IVV has an expense ratio of 0.03%. The expense ratio for both funds is top-notch and probably the lowest feasible fee for a large-scale fund on the market. Even though Fidelity has managed to operate funds at under 0.02% it is widely accepted as a marketing move.
VTI has an expense ratio of 0.03%. Vanguard has been known for keeping expense ratios as low as possible since all profits are distributed back to investors anyhow. There is no third party involved demanding higher fees for more profits at Vanguard.
In this part of the post, I will look a bit closer at the composition of both funds. What are the percentages of small-, mid-, and large-cap stocks in their holdings and how are these distributed across various industries?
For IVV the picture looks as expected: small-cap stocks are not included in the fund (as they are also not present in the S&P 500 index) and large-cap stocks make up a vast majority of the fund’s total assets at 85%.
Mid-cap stocks have managed to get to 15% of total holdings and will likely decrease in the future as larger companies take a bigger share of the pie.
With VTI we get exposure to the entire US stock market so unsurprisingly the distribution of capital looks a bit more diverse here as well. We get 9% of small-cap stocks with VTI and a decent chunk of 20% is allocated to mid-cap companies.
These percentages eat away at the total and leave around 72% for large-cap companies. This distribution of market cap broadly represents the distribution within the entire US market.
When it comes to industry exposure we want to make sure not to be too reliant on one single industry and diversify our holdings as much as possible. However, with broad market funds such as IVV and VTI this is generally not an issue.
IVV is dominated by technology stocks (as is the entire US stock market) and somewhat diversified in other sectors. The smaller ones are energy, utilities, real estate, and basic material which together make up only about 10% of the fund.
On the other, tech stocks alone comprise nearly one-quarter of the fund’s total assets. Some other industries worth mentioning are healthcare, financial services, and communication services which together make up about one-third of IVV.
The picture for VTI looks only slightly different even though the fund is more diversified when it comes to market cap. The aforementioned small sectors of basic materials make up a bit more than 15% with VTI and take away slightly from the tech sector’s domination.
However, tech still makes up around 24.5% of VTI’s total holdings. This trend is likely to continue in the coming years and has been accelerated by the 2020/2021 pandemic which pushed large industries into the hands of tech giants.
FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).
IVV vs. VTI – Analysis
Up until now, we have looked at some fairly generalized statements about VTI and IVV. This is going to change now! This section of the post will deal largely with specific data points and analyses of volatility, drawdowns, and market correlation.
|Arithmetic Mean (monthly)||$0.01||$0.01|
|Arithmetic Mean (annualized)||10.53%||11.10%|
|Geometric Mean (monthly)||0.75%||0.79%|
|Geometric Mean (annualized)||9.37%||9.85%|
|Downside Deviation (monthly)||2.82%||2.91%|
|US Market Correlation||1||1|
In terms of monthly volatility IVV actually is a bit more stable than VTI at 4.20% vs. 4.33%. Annualized the same pattern holds and VTI comes out at the end of the year slightly more volatile than IVV.
IVV’s annualized volatility is 14.53% whereas VTI adds up to 15.01%. Although the difference is minor this is something to be aware of especially if you are handling larger portfolios and need easy access to your funds over time.
The above gives us a neat visualization of IVV’s and VTI’s drawdowns over the past two decades starting in 2002 with the dot-com bubble bust.
Both funds have had very similar drawdown periods and have closely followed in line with the total stock market performance.
There are only some notable differences namely in the period from 2010 to 2012 where IVV was lagging behind VTI by a significant margin. Here small-cap stocks simply outperformed the larger-cap slower-moving companies.
NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).
IVV vs. VTI – Performance
To truly compare IVV and VTI we can’t get around looking at the raw return numbers and portfolio performance. For this reason, I have set up an extensive portfolio backtest that looks at a $10,000 investment n both VTI and IVV and measure the portfolio’s cumulative performance over time.
When looking at the annual returns one thing becomes obvious immediately: generally, both funds perform about the same, i.e. in positive years IVV and VTI have positive returns, in negative years, they have negative returns.
However, there are a few instances when VTI actually does more than a bit better than IVV (or sightly less worse). Just from looking at the above chart, we can pinpoint these years as 2003, 2004, 2005, 2009, 2010, and 2013.
While there are also some years when IVV outperformed VTI these years are few and far between.
|Portfolio||Initial Balance||Final Balance||CAGR|
Given the above analysis of the annual returns, it is not surprising then that VTI’s cumulative returns over time have also outperformed those of IVV.
Over the past 2 decades, VTI has outperformed IVV on average by 0.5% per year which can add up to quite an amount over 20 years. In fact, The final balance for the VTI portfolio is more than $5,000 larger than that of IVV.
We can also simply compare the compound annual growth rate (CAGR) for both funds which comes down to 9.37% for IVV and 9.85% for VTI. Thus, VTI would have been the better investment in 2002.
BTW: Uncorrelated crypto assets such as Bitcoin can serve as a hedge and mitigate risk. I've allocated around 5% of my portfolio to crypto assets through Coinbase - the simplest and cheapest broker I've found! Click here to read more (link to Coinbase).
In summary, both funds present a good way to invest in a well-diversified fund that covers nearly the entire market. However, there are also some major and minor differences between IVV and VTI that can add up in the long run.
While it cannot be said with certainty that the trend in these differences will continue it is fair to say that VTI has proven to be more resilient in past crises and more progressive in times of economic boom.
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
2) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
3) If you are interested in crypto, check out Coinbase. I've started allocating a small amount of assets to the growing crypto space and Coinbase has just been a breeze to use. Once you register, make sure to also open an Coinbase Pro account to buy crypto at the lowest fees on the market (just 0.1%!).
To see all of my most up-to-date recommendations, check out the Recommended Tools section.