Interest in the Vanguard US Total Market Shares Index ETF (ASX: VTS) has been growing on the ASX in recent months. Perhaps the ultra-low management fee of 0.03% per annum is attracting investors to the broad-scale index fund.
But this exchange-traded fund (ETF) is one of the largest in scope and scale on the ASX. It means what it says on the tin when it comes to 'total market'.
So today, let's break down this rather unique ASX ETF and look at what you will actually own if you purchase VTS units on the share market today.
Image source: Getty Images
What does the VTS ETF do for ASX investors?
Unlike other US-based index funds like the iShares S&P 500 ETF (ASX: IVV) or the BetaShares Nasdaq 100 ETF (ASX: NDQ), the Vanguard US Total Market ETF doesn't invest in a commonly known index. Nor does it hold just 500 or 100 companies respectively. Instead, it tracks the CRSP US Total Market Index, which, at last count, consisted of no fewer than 3,719 individual companies.
In this way, the VTS gives ASX investors unrivalled access to the full spectrum of what American capitalism and the US public markets have to offer.
However, unfortunately for ASX fans of true diversification, this VTS ETF isn't quite as different from other US-based index funds as it might first appear. Yes, it has 3,719 individual holdings, against the IVV ETF's 500. But this doesn't mean that VTS offers six times more diversification.
To illustrate, let's look at the Vanguard US Total Market ETF's largest holdings. They are none other than the big US tech giants we all know and may or may not love.
Coming in at the top spot is tech behemoth Microsoft. Apple is next, followed by NVIDIA, Alphabet and Amazon. Then there's Meta Platforms, Warren Buffett's Berkshire Hathaway, and Eli Lilly & Co. Broadcom and JPMorgan Chase bring up the rear.
3,719 vs. 500
If every share had an equal weighting in the fund's portfolio, those 10 shares would account for just 0.27% of the VTS portfolio. However, given that VTS is instead structured using the conventional market-capitalisation-weighted method, these 10 stocks make up a whopping 29.4% of this fund's portfolio.
This means that out of every dollar invested in VTS units, 29.4 cents will go to the 10 names listed above.
That's really not too different from the iShares S&P 500 ETF, which would see 34.73 cents out of every dollar going to those same 10 companies.
Saying that, the iShares S&P 500 ETF charges a management fee of 0.04% per annum. So those who want the added diversification of VTS have no financial reason to go for another option.
But if you think the iShares S&P 500 ETF and the Vanguard US Total Market ETF are wildly different funds, you might want to think again.
