3 Things Every Vanguard S&P 500 ETF Investor Needs to Know

The S&P 500 is the world’s most widely followed equity index, and the world of exchange-traded funds (ETFs) confirms as much.

Each of the top three U.S.-listed ETFs, including the Vanguard S&P 500 ETF (VOO +0.92%), tracks the S&P 500. Led by the Vanguard fund at $865 billion, those three ETFs combine for a staggering $2.28 trillion in assets under management (AUM). The other members of that trio are the iShares Core S&P 500 ETF (IVV +0.83%) and the **State Street SPDR S&P 500 ETF **(SPY +0.91%).

The Vanguard ETF’s AUM lead over the second-place iShares fund is sizable at north of $124 billion, but there are other details for investors, particularly those new to the game, to consider. Let’s look at three important ones here.

With S&P 500 ETFs, the details matter. Image source: Getty Images.

1. S&P 500 ETFs are diverse…sort of

This isn’t an indictment of the Vanguard fund, because what follows is true of all the ETFs mentioned, but the reality is that S&P 500 index funds aren’t as diverse as they used to be or as diverse as some market participants expect these products to be.

Translation: The Vanguard ETF and its brethren allocate significant portions of their lineups to a small number of stocks. As of the end of January, the top five holdings in the Vanguard fund combined for approximately 27% of its weight. By the S&P 500’s historical standards, that level of concentration is elevated.

As for how that situation materialized, it’s the result of the index’s weighting components based on market capitalization. Put simply, as a stock’s market cap increases, it takes on a larger slice of a cap-weighted pie, such as the S&P 500.

2. It’s a blend ETF, or is it?

Experienced investors know about style, and that doesn’t mean the GQ or Vogue type. When it comes to ETFs or other funds, they’re classified by a combination of market capitalization and style, such as growth, value, or a blend fund.

This Vanguard ETF and its S&P 500 peers are classified as large-cap blend funds, but are they really? Due to the aforementioned market-cap-weighted methodology, S&P 500 ETFs tilt heavily toward growth stocks. For example, the Vanguard fund’s overlap with the Vanguard S&P 500 Growth ETF (VOOG +1.35%) by weight is 64%. That’s well ahead of the 44% overlap shared between the S&P 500 and the Vanguard Value ETF (VTV +0.23%).

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NYSEMKT: VOO

Vanguard S&P 500 ETF

Today’s Change

(0.92%) $5.68

Current Price

$624.11

Key Data Points

Day’s Range

$609.22 - $625.32

52wk Range

$442.80 - $641.81

Volume

633K

By the letter of the law, S&P 500 ETFs are blend funds, but they tilt more toward growth stocks than some investors realize.

3. It’s a cheap ETF, but not the cheapest

One of the primary reasons why so many investors love Vanguard ETFs and index funds is the low expense ratios. The Vanguard S&P 500 lives up to that heritage, charging just 0.03% annually, or a mere $3 on a $10,000 investment.

That’s a really good deal, but for buy-and-hold investors that want to save every dollar possible, the State Street SPDR Portfolio S&P 500 ETF (SPYM +0.80%) is even less expensive at 0.02% per year.