This morning, we discussed the most popular exchange-traded fund (ETF) on the ASX for investors wishing to invest in the US markets. The iShares S&P 500 ETF (ASX: IVV) easily takes that crown, with over $14 billion in funds currently under management. But could the Vanguard Morningstar US Total Market Shares Index ETF (ASX: VTS) be a better choice for that slice of America in an ASX portfolio?
In theory, the iShares S&P 500 ETF and the Vanguard US Total Market ETF are quite different.
For one, IVV is an index fund that tracks the S&P 500 Index. This flagship index represents the largest 500 stocks on the US markets, weighted by market capitalisation (size).
Meanwhile, the VTS ETF tracks a far less common index, the Morningstar U.S. Total Market Index. Instead of following just the largest 500 stocks on US markets, this index tracks more than 4,000. As such, it offers significantly more coverage of mid- and small-cap US stocks than IVV.
Is this enough to make VTS the better choice over IVV? Well, diversification is usually a good thing for investors seeking to increase their exposure to an entire market.
However, as we touched on above, the differences between the IVV and VTS ETFs are more theoretical than practical. That's because, while both funds have different scopes, they both weight their portfolios by market capitalisation. That means the largest shares take up far more room than the smaller ones in both funds. Since both IVV and VTS both share the same stocks at the top of their portfolios, buying either will get you a similar investment profile.
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IVV vs. VTS: Top ETF holdings compared
To illustrate, as of 31 July, IVV's top five holdings, and their respective weightings, were as follows:
NVIDIA Corporation (NASDAQ: NVDA) at 7.53%
Apple Inc (NASDAQ: AAPL) at 7.03%
Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) at 5.85%
Microsoft Corporation (NASDAQ: MSFT) at 5.35%
Amazon.com Inc (NASDAQ: AMZN) at 4.12%
Meanwhile, the VTS ETF's largest stocks, as of 31 July, were:
NVIDIA at 6.39%
Apple at 6.28%
Alphabet at 5.2%
Microsoft at 4.78%
Amazon at 3.64%
As you can see, there's not a lot of daylight between these two ETFs' holdings.
But let's look at performance.
Over the 12 months to 31 July, IVV returned 9.42%. That rose to an annualised 17.41% over three years, and 13.61% per annum over five.
Meanwhile, the VTS ETF returned 9.82% over the year to 31 July. Over three years, it managed an average of 17.19% per annum, and 12.77% per annum over five years.
So it's clear we're doing a bit of hair splitting here. Overall, these two ASX ETFs can be expected to deliver a similar return over time, given their overlapping, heavy exposure to the largest US stocks on the market. It's my view that ASX investors who are looking for cheap, easy exposure to US stocks can't go wrong with either fund.
