3 reasons the Vanguard US Total Market Shares Index ETF (VTS) is still a top buy

The US stock market has been a great investment.

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The Vanguard US Total Market Shares Index ETF (ASX: VTS) is one of the most popular ASX-listed exchange-traded funds (ETFs). It has also been one of the very good performers over the last decade.

For readers who haven't heard of this fund before, it's an ETF that enables investors to get access to most of the market capitalisation of the US stock market.

Past performance is definitely not a guarantee of future performance. But, for the below three reasons, I think it still has a very good future.

Strong businesses

A lot of the performance of the US share market is driven by the biggest companies.

Its top holdings are really impressive companies, including Microsoft, Apple, Alphabet, Nvidia, Amazon.com, Meta Platforms, Berkshire Hathaway and Eli Lilly.

In my eyes, great businesses keep winning over the long term, particularly if they have a strong offering and a great economic moat. I think it would be almost impossible for a new competitor to challenge those US giants – they are in a very strong market position.

Vanguard has revealed a number of impressive metrics about its portfolio. It has a return on equity (ROE) of 24%, while the trailing earnings growth rate was 15.6%.

Diversification

The VTS ETF can provide excellent diversification for portfolios.

It has a large number of holdings – at the end of January 2024, it had 3,747 positions in the portfolio. That's a huge amount of diversification and is very good for reducing the risk of any individual company.

Another form of diversification is the allocation between sectors. It has the most allocated to the most attractive industry which is generating a lot of growth, but all of the eggs aren't in one basket.

At the end of January 2024, these were the sector weightings in the VTS ETF:

Technology – 31.9%

Consumer discretionary – 14%

Industrials – 12.9%

Healthcare – 12.2%

Financials – 10.9%

Consumer staples – 4.7%

Energy – 4%

Real estate – 2.9%

Utilities – 2.5%

Telecommunications – 2.1%

Basic materials – 1.9%

Very low management fees

One of the best things about the Vanguard US Total Market Shares Index ETF is its very low annual management costs.

The lower the fees, the more of the money that stays in the hands of the investor, so it helps the net returns.

The VTS ETF has an annual cost of 0.03%, which is one of the lowest on the ASX.

Foolish takeaway

The Vanguard US Total Market Shares Index ETF had returned an average of around 15% per annum. We can't expect that level of return to occur in the short-term or the long-term, but the quality of the underlying businesses is good enough that could enable it to continue to beat the S&P/ASX 200 Index (ASX: XJO), even from the high current valuation.  

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, and Nvidia. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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