Comparing Total Market ETF’s – ITOT and VTI
Today we’re going to look at two of the most popular TOTAL MARKET ETF’s, ITOT and VTI. I’ll preface by stating I own ITOT in my Traditional IRA account; here’s a prior blog where I talked about it: ITOT ETF
I think every portfolio needs a good Total market ETF as it’s super hard to outperform the market long-term. I also own VTSAX (Vanguard’s Total Market mutual fund) in my ROTH, but this post is about ETF’s.
Both Blackrock’s Ishares and Vanguard are names that have been around for a long time. They are some of the most trusted investment companies in the world. Vanguard’s VTI has been live since 2001, and the ishares’ ITOT total market ETF began in 2004. VTI has only a few more years of history than ITOT.
Here is the breakdown of our ETF analysis:
- Assets Under Management
- Expense Ratio
- Number of Holdings
- Indexes Tracked
- Dividend Yield
- Trading Volume
- Sector Exposure
Assets Under Management
From an Assets Under Management perspective, Vanguard’s VTI is larger (283 BILLION) vs. 43 BILLION for ITOT. It turns out VTI is in the top three largest ETF’s. SPY and IVV are the only ones larger.
Expense Ratio of VTI vs. ITOT
Expense ratio is one of the first things investors should look at it, as it’s a cost that is passed on to them. Usually with total market ETF’s, expense ratios aren’t too much of a concern. Both Ishares ITOT and Vanguard’s VTI have extremely low expense ratios of 0.03%.
Number of Holdings of VTI vs. ITOT
VTI has over 4000 holdings, while ITOT has 3660. If your idea of better is more holdings, then VTI is clearly the winner. You are getting a tiny bit more of Apple and Microsoft as well. At the same time, maybe some of its holdings aren’t additional ones you need or want? That’s something you have to decide with your own personal portfolio. For the sake of this article, I’ll assume more diversification is better.
What Index do they Track?
ITOT tracks the S&P Total Market Index and VTI tracks the CRSP (Center for Research in Securities Prices) Total Market Index. Both are cap weighted indexes. With ITOT, you’re getting slightly more small and mid-cap exposure. At the moment, Mid-cap exposure is 19.32% for ITOT vs 19.15% for VTI. Small cap exposure is 6.17% vs. 6.04%.
ITOT currently has a yield of 1.20% while VTI has a yield of 1.26%. It’s not a huge different, but just enough for VTI to pull ahead. On the other hand, depending on where you hold it (in a tax advantaged or taxable account), maybe you don’t want extra dividends.
Trading Volume and Considerations
VTI is 1.21 Billion dollars in Daily Volume while ITOT is 366 Million. The Median 30 day bid/ask spreads for VTI and ITOT are 0.02% and 0.01% respectively. Tracking Errors are 1.56 and 1.54 respectively.
I’m saying it’s a tie because at this level it is so close. Trading volume is adequate for both ETF’s; I don’t think it’s a consideration. ITOT has a little less spread and tracking error.
Of course, performance is one of the main things on investors minds when they purchase an ETF. At the same time, be careful when making decisions based on historical/past data; there is no guarantee it’ll behave the same way. However, let’s look at these two funds since 2004 (ITOT’s inception year).
It seems VTI edges it out by just a small bit from 2004 to 2022. 10.04% CAGR vs. 9.88%. At the same time, I did notice over the last year ITOT is ahead of VTI by a tiny bit. It’s my understanding that VTI has a bit more exposure to small and medium cap stocks, perhaps driving the outperformance over the last eighteen years. They are neck and neck, you aren’t seeing too great of a difference. Despite the fact that ITOT had a smaller max drawdown, it still fell slightly behind VTI. In other words, it recovered faster than ITOT.
ITOT has 25.48% IT exposure vs. 25.39% for VTI. ITOT has 14.88% Health Care exposure vs. 13.45% for VTI. Financials are 11.63% and 11.34% for VTI. In short, the top three sectors are slightly heavier weighted for ITOT vs. VTI. VTI does have a bit more energy and materials sector exposure with 4.75%and 2.94% exposure retrospectively. I don’t think there is a clear winner here.
If your goal is to get market returns or be a Boglehead, I don’t think you can go wrong with either of these. However, even though I own ITOT, it seems VTI gets the edge slightly here. So far, it has offered better long-term performance and a better yield. So, I’m pronouncing VTI as the winner for today. I will add one last thing-VTI and ITOT actually make a good tax loss harvesting pair if you are in to that sort of thing.