Today, we’ll examine two giants of the ETF world: VOO vs. VTI.
When I first started investing in Vanguard’s index funds I had no clue what the difference was between VOO and VTI. People were recommending one or the other for no apparent reason. In this article, I want to take a different approach. We will compare both of these ETFs based on data.
Which is better? VOO is better than VTI in terms of total returns with a compound annual growth rate (CAGR) of 11.65% vs. 11.18%. However, VTI holds a much larger number of securities. Both funds, VOO and VTI have an expense ratio of 0.03%.
Even though both funds look and perform similarly, let’s explore some of the more intricate differences!
VOO vs. VTI – Overview
In this post, I’ll go over some of the key differences between VOO and VTI in terms of their index, expense ratio, and assets under management. We’ll also see how they differ in composition and industry exposure.
In the second part I’ll conduct a risk analysis examining each fund’s volatility and drawdown as well as their annual returns.
Let’s get started!
What’s The Difference?
|Name||Vanguard S&P 500 ETF||Vanguard Total Stock Market ETF|
|Index||S&P 500 Index||CRSP US Total Market Index|
The Vanguard S&P 500 ETF (VOO) tracks – as the name suggests – Standard & Poor’s S&P 500 index. This index includes the 500 largest companies in the United States by market cap and is comprised of little more than 509 companies due to fluctuation.
The Vanguard Total Stock Market ETF (VTI) tracks the CRSP US Total Market Index. This index aims to replicate and mirror the performance of the entire U.S. stock market and follows more than 3,500 companies.
Both of these indices are widely tracks among ETFs as becomes apparent when looking at the top 5 ETFs by market cap:
VOO and VTI both have around $133B in assets under management and are in a constant battle between ranks three and four among the top 5.
VOO and VTI both have an expense ratio of 0.03% which is one of the lowest on the market. There are some funds with a similar expense ratio such as SCHB also at 0.03% or Fidelities fund’s which offer fee-free ETFs as loss leaders.
An expense ratio of 0.03% means that for every $10,000 you would invest in either VOO or VTI you would an annual fee of $3. What an excellent deal for getting exposure to pretty much the entire stock market in return!
VOO and VTI are both issued by Vanguard which is probably my favorite asset management company out there.
Not only do they offer excellent investment products with low fees, but they also have a unique ownership structure giving investors a stake in The Vanguard Group.
Number of Holdings
With 509 holdings, VOO appropriately represents the S&P 500 index.
VTI, on the other hand, holds more than 3,500 securities. That is more than 7 times more than VOO. Of course, simply holding more securities does not make VTI a better fund, however, it does give a truer representation of the entire U.S. stock market if that is what you are after.
Needless to say that both ETFs have different goals. While VOO aims to only track the top 500, VTI encompasses a broad spectrum of small-, mid-, and large-cap companies as we will see next!
In the following paragraphs, we’ll take a closer look at differences in equity market capitalization between VOO and VTI.
As shown by the pie chart above, small-cap companies are non-existent in VOO. Well, to be fair, if you add up the percentages there should be a remainder of 0.02% which can be attributed to small-cap companies.
However, with large-cap companies making up over 85%, it can be safely said that VOO is not the fund for you if you’re looking for some small-cap exposure.
VTI’s market capitalization looks a bit more balanced. Although not exactly visible, small-cap companies amount here to around 6.5% of net assets. Mid-cap stocks also represent a much higher 17.5% of the fund’s portfolio which leaves large-cap stocks at around three-quarters of assets.
What we see here is one of the biggest differences between VOO and VTI: Market Capitalization.
Your portfolio’s exposure to different industries can play a major role in diversifying your assets and making sure you have balanced market exposure. First, we’ll look at the industry sectors that make up VOO:
The industry dominating VOO is Technology at close to 24%. This is followed by Healthcare and Financial services at around 15%. VOO has the least industry exposure to the Basic Materials, Real Estate, and Energy sector.
The following chart shows the industry exposure for VTI:
The picture looks quite similar: Basic Materials, Utilities, and Energy are the smallest sectors by net assets and Financial Services, Healthcare, and Technology together make up almost half of the fund’s exposure.
The differences here might be minute, but there are some.
For one the Real Estate sector is much more pronounced in VTI. This can lead us to believe that a lot of the small-cap companies that are not included in VOO are either REITs or small real estate firms.
Overall, VTI has a slightly more balanced exposure to various industry sectors.
VOO vs. VTI – Analysis
As we will see, VOO and VTI also differ in their risk behavior. In this part, we’ll look at the funds’ volatility and maximum drawdown over the period from 2011 to the present day.
|Downside Deviation (monthly)||2.41%||2.56%|
|US Market Correlation||1||1|
Volatility for VTI is a bit higher than for VOO at 3.95% vs. 3.79% monthly. On an annual basis, this adds up to a difference of 0.57%. Although this may be a significant variance, it does not represent a threat to your portfolio composition.
The above numbers roughly represent those of the entire United States market. When you choose to invest in stocks in general, volatility and market fluctuations are part of the game. Even in the biggest drawdown it might be wise to keep your funds just where they are: invested.
As with volatility, VTI has also experienced a significantly higher maximum drawdown than VOO. In the most recent market downturn, VTI has experienced a drawdown of -20.84% while VOO bottomed out at -19.58%.
This difference in drawdowns over time can be illustrated with the following chart:
Although for the most part, both funds act in synchronicity, there are times when drawdowns vary. Most notably in 2012 and 2015/2016 when VTI failed to recover as fast as VOO.
VOO vs. VTI – Performance
As with any good comparison of two funds, their overall performance is one of the most important factors when choosing which to invest in. And with VOO vs. VTI this is a close call. We’ll look at the annual returns first and then back-text a portfolio of $10,000 to see which of these funds comes out ahead.
Comparing the annual returns of VOO and VTI might highlight and underlines some of the variances in volatility and drawdowns we have seen above:
As VOO was only issued in 2011 we, unfortunately, have much fewer data to compare VTI to. However, also this rather short time frame can give us some insight.
What is striking immediately, is how much worse VTI tends to perform then the market turns south as in 2018 and 2020. On the other hand, in strong economic growth times, VTI also outperforms VOO on occasion as in 2012/2013.
Overall, the biggest issue with the data points we have is that VOO has not lived through an extended bear market yet. The past decade has seen an unprecedented bull market like nothing we have seen before which has obviously been very advantageous for large-cap growth.
In order to get a better understanding of how these annual returns add up over time, the following graph shows the accumulated portfolio growth of VOO and VTI over the same time period. All distribution have been reinvested.
|Portfolio||Initial Balance||Final Balance||CAGR|
If you had invested $10,000 in VOO in 2011 and reinvested all dividends your portfolio would now be worth $27,978. If you had invested the same amount in VTI over the same time frame it would “only” have yielded $26,884. That’s a difference of more than $1,000.
As mentioned before, the biggest caveat here is the limited data available for VOO.
Starting with a comparison of the differences in key facts and composition we have seen how VOO and VTI differ on a more detailed level.
VOO’s composition does not include any small-cap companies and is heavily skewed toward large-cap stocks. VTI includes some more real estate and consumer defensive goods in its holdings.
VOO is less volatile than VTI and experiences lower drawdowns. And in the end, all this accumulated to a difference in the performance of more than $1,000 over 8 years.
So, which of these two funds is really better? VOO or VTI? Well, just looking at the performance the answer seems obvious: VOO.
However, I would like to make a case for the additional diversification in small-cap companies that VTI provides. I believe that small-cap companies can ply a crucial role in more arduous economic times than those that we have experiences in the past years.
Tech giants won’t be around forever and at some point, even those companies seemed untouchable in the past have become shadows of their former glory (Standard Oil, GM, etc.).
Are you willing to take that risk?