2023-03-20 08:00:00 ET
Summary
- The Vanguard Total Stock Market ETF invests based on the CRSP US Total Market Index.
- The SPDR Portfolio S&P 1500 Composite Stock Market ETF invests based on the S&P Composite 1500 Index.
- This article reviews both ETFs, their underlying indices and compares their return and risk data. The key parts of the article are the Compare and Portfolio Strategy sections.
- Based on this and other Total Market ETF comparisons I have done or seen, it comes down to not return, but maybe fees paid and/or manager preference. I own three!
(This article was co-produced with Hoya Capital Real Estate )
Introduction
I like comparing similar strategy ETFs to see if their nuances make a difference to investors. If not, my recommendation is picking the ETF whose manager/sponsor matches the other ETFs they own, with fees possibly being a deciding factor. That is the conclusion here. This article focuses on two ETFs, one each from two well-known sponsors:
In return/risk section of this article, I will include a few other total-market ETFs and later, links to recent articles on most of them.
Why Total-Market ETFs and US ones in particular?
Results and simplicity are my top two reasons. US stocks are outperforming International stocks, especially with the USD continuing to show strength. Within the US market, investors have the ability to set their own allocation between the different market-caps; doing so effectively is another matter. Using US total-market ETFs handles both issues.
While the Total Market was never the best or worst performer, the best/worst market-cap changed regularly. My Using A Large-Cap/Small-Cap Model To Beat The Market article indicated Alpha might be attainable switching between the two market-caps, but it wasn't much and did not take into account trading costs or taxes.
Vanguard Total Stock Market ETF review
Seeking Alpha describes this ETF as:
The investment seeks to track the performance of the CRSP US Total Market Index that measures the investment return of the overall stock market. The fund employs an indexing investment approach designed to track the performance of the index, which represents approximately 100% of the investable U.S. stock market and includes large-, mid-, small-, and micro-cap stocks. VTI started in 1992.
Source: seekingalpha.com VTI
VTI has amassed $271b in assets and comes with the usual small fee from Vanguard: 3bps. Investors currently see a 1.6% yield.
Index review
CRSP provides this information about their index:
CRSP Market Indexes capture broad U.S. equity market coverage and include securities traded on NYSE, NYSE American, NYSE ARCA, NASDAQ, Bats Global Markets, and the Investors Exchange. Nearly 4,000 constituents across mega, large, small and micro capitalizations, representing nearly 100 percent of the U.S. investable equity market, comprise the CRSP US Total Market Index. Reconstitution occurs quarterly after the market close on the third Friday of March, June, September, and December.
- INDEX MARKET CAP 37,655,781
- LARGEST COMPANY 1,963,595
- SMALLEST COMPANY 1
- MEDIAN COMPANY 672
- AVERAGE COMPANY 9,584
- NUMBER OF COMPANIES 3,929 %
- WEIGHT LARGEST COMPANY 5.21 %
Source: crsp.org Index
VTI holdings review
The first thing I checked was how adding non-Large-Cap stocks affected these sector allocations. Answer: very little which indicates how the Large-Cap stocks can even dominate a Total-Market ETF. More on that in the Comparison section.
advisors.vanguard.com; compiled by Author
With over 3900 stocks, the Top 20 still represent almost 30% of the portfolio; compared to the bottom 3000 stocks of the portfolio being only 8%! Translation: while VTI provides total market coverage, most of the results come from a small percentage of the larger stocks held.
VTI distribution review
While the yield won't attract income investors (1.6%), distributions have grown nicely since VTI started, averaging 7.37% over the past decade. Seeking Alpha gives VTI an "A" rating for this factor.
seekingalpha.com VTI scorecard
SPDR Portfolio S&P 1500 Composite Stock Market ETF review
Seeking Alpha describes this ETF as:
The investment seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Composite 1500 Index . Under normal market conditions, the fund generally invests substantially all, but at least 80%, of its total assets in the securities comprising the index. The index is designed to measure the performance of the large-, mid-, and small-capitalization segments of the U.S. equity market. The index consists of those stocks included in the S&P 500 Index, the S&P MidCap 400 Index, and the S&P SmallCap 600 Index. Benchmark: S&P 1500 TR. SPTM started in 2000.
Source: seekingalpha.com SPTM
SPTM has "only" $5.6b in assets but comes with the same level of fees as VTI: 3bps. The yields closely match too with SPTM showing 1.63% yield.
Index review
S&P Dow Jones provides this information about this index:
The S&P 1500™ combines the S&P 500, S&P MidCap 400, and S&P SmallCap 600 to cover approximately 90% of U.S. market cap. The index is designed for investors seeking to replicate the performance of the U.S. equity market as a whole or benchmark against a representative universe of tradable stocks.
Source: spglobal.com Index
With over 60% less stocks, most in the lower market-cap range, the median market-cap for this index is $4.7b, compared to only $672m for the CRSP index. That directly affects what is held by either ETF since both invest based on their underlying index, though as you will see later, the effect is very little.
SPTM holdings review
seekingalpha.com SPTM sectors ssga.com; compiled by Author
With only 1500 stocks, the Top 20 are slightly higher as a percent of the portfolio: 33.4%. Here, the bottom 75% of the stocks provide more input into the results as they weigh in at 11.4% of the portfolio. Notice, that despite Large-Cap stock comprising the Top 20 in both ETFs, the order does not match, even if most of the stocks are the same. That, to me, indicates the Indices are using different methods to weight the index components.
SPTM distribution review
It was already noted that both ETFs yield just over 1.6%. Here we see a similar pattern of distribution growth, with the 10-year CAGR being 8.71%, 134bps more than VTI's CAGR. SPTM also rates an "A" for dividends.
seekingalpha.com SPTM scorecard
Comparing ETFs
First, I will just compare the two ETFs reviewed here, starting with the Market-Cap and Growth/Value allocations.
advisors.vanguard.com Compare
I was surprised, at first, how close these were considering VTI's much higher stock count, but on second thought, it just indicates how little adding 2400 more stocks of the smaller market-cap affects the overall portfolio allocation. The Growth & Value splits each vary by 1%. Both sets of data points eliminate size and Growth/Value factors from deciding between these ETFs in my eyes.
For the next part, I will include other ETFs that invest using varying definitions for the Total US equity market. These include:
- iShares Core S&P Total U.S. Stock Market ETF ( ITOT ): 3300 stocks
- Schwab U.S. Broad Market ETF ( SCHB ): 2400 stocks
- Vanguard Russell 3000 ETF ( VTHR ): 2950 stocks
seekingalpha.com Peers function
The above shows how the choice of the index effects the stock count, Top 10 concentration, and portfolio turnover, which results in trading costs. As for Seeking Alpha ETF grades, they are all very close.
Within the Large Blend sub class, the Seeking Alpha Quant rankings are:
VTI 41st; SPTM 28th; ITOT 46th; SCHB 54th; and VTHR last at 77th, out of 153 ranked ETFs. The next set of data points provides return and risk information.
Data goes back to October 2010, when VTHR started. Selection based on fees would only eliminate VTHR (10bps) as the others are all 3bps. Plus VTI, also from Vanguard, has better data points than VTHR. As for the others, SPTM has the best values for most of the values.
So if CAGR, StdDev, risk ratios and fees are so close to not indicate a clearly superior ETF, the final decision seems to come down to this: "Which ETF manager are you currently using or the one you have a preference for?". While my highest exposure is to VTI, I do own both the ITOT and SPTM in some accounts instead because there they aligned with the manager of the other ETFs in those accounts.
Portfolio strategy
Owning one ETF that covers the entire US market makes for a great core holding to build off of. As the above shows, adding lots of small-cap stocks, because of their limited representation in the ETF, adds little to the overall results, using a separate Small-Cap ETF might more sense, as is explored next.
On top of such a core holding, investors can add other ETFs to adjust their allocation to various components of the US stock market, such as market-cap, growth/value split or single sectors:
PortfolioVisualizer.com: Market-Cap factor PortfolioVisualizer.com: Growth/Value factor seekingalpha.com; sector factor
Over/under weighting each of these factors does take more due diligence to develop or find experts to know when each will perform better than its counterpart. Plus, you could be right for one factor but wrong on another, such as investing in the correct market-cap but the wrong sector if the ETF is that focused.
Final thoughts
Here are links to recent articles about these are other US Total Market ETFs.
- VTI: Truly Passive Investing In The U.S. Market
- ITOT And SPTM: When It Comes To U.S. Equity ETFs, More Stocks Not Always Better
- SCHB: Wait And See Is The Best Approach For Now
For further details see:
VTI Vs. SPTM For Total U.S. Equity Exposure