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The Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) and the Vanguard 500 Index Fund Admiral Shares (VFIAX) combined manage more than $2 trillion in assets for investors, making them two of the largest passively-managed mutual funds in the financial industry nowadays.
These two vehicles offer exposure to the United States equity markets but they are structured differently as one tracks the performance of the country’s largest companies while the other holds a basket of thousands of stocks of different sizes and industries.
In this article, we will be discussing the characteristics of these two funds, what makes them similar, and what makes them different so our readers can make an informed choice of which of the two is a better fit for their portfolios.
|Vanguard 500 Index Fund Admiral Shares
|Vanguard Total Stock Market Index Fund Admiral Shares
|Price calculated end-of-day
|Price calculated end-of-day
|Trades at market close
|Trades at market close
|Number of Stocks
VTSAX vs. VFIAX: Overview
In this section, we’ll provide a summary of the scope and reach of these two successful mutual funds.
What Is VTSAX?
The Vanguard Total Stock Market Index Fund Admiral Shares (MUTF: VTSAX) was launched by the asset management firm back in 1992 and quickly became a popular choice among individual investors who preferred to take a hands-off approach when investing their money in the stock market.
This mutual fund provides ample exposure to the United States stock market as it invests in more than 4,000 different companies of different sizes and industries, allowing investors to instantly diversify the equity portion of their portfolios.
The fund invests in small-cap, mid-cap, and large-cap growth and value companies and tracks the performance of the Dow Jones US Total Stock Market Index.
The largest chunk of the fund’s portfolio composition is dedicated to the technology sector, currently at 29.5%, followed by the consumer discretionary (16.5%), industrial (12.6%), and health care (12.4%) sectors.
The fund currently oversees $1.3 trillion in net assets for investors. It charges a 0.04% expense ratio and demands a minimum $3,000 investment from users.
What Is VFIAX?
The Vanguard 500 Index Fund Admiral Shares (MUTF: VFIAX) is a large passively-managed mutual fund with more than $800 billion in assets under management. This fund provides exposure to the 500 largest corporations of the United States, which participate in different industries, and are considered the most stable and successful enterprises. These are known as blue-chips stocks.
The 500 stocks that comprise the fund’s portfolio represent approximately three-fourths of the total market capitalization of the US stock market as a whole. The fund tracks the performance of the popular S&P 500 index.
Currently, the information technology sector accounts for 29.4% of the fund’s total assets followed by consumer discretionary (13.2%), and health care (12.8%). The fund charges a 0.04% annual management fee.
VTSAX vs. VFIAX: Performance
The following is a summary of the performance that these two funds have displayed during different holding periods based on data obtained from Vanguard’s official website.
- 1-year: 26.5%
- 3-year: 20.2%
- 5-year: 17.6%
- 10-year: 15.9%
- Since inception (11/2000): 8.5%
- 1-year: 27.9%
- 3-year: 20.4%
- 5-year: 17.9%
- 10-year: 16.1%
- Since inception (11/2000): 8.0%
VTSAX vs. VFIAX: Similarities
Even though the scope of each of these two funds is different, they share some major similarities that investors should be aware of.
Both VTSAX and VFIAX are structured as mutual funds, which means that their shares are not traded in an exchange. Instead, the fund issues and buys back its shares based on how inflows and outflows behave.
As a result, there is a minimum investment required to open a position in both mutual funds. For both, that minimum threshold is $3,000.
Even though the two funds provide exposure to the US equity markets through different approaches, they are both considered “blended” vehicles, meaning that they invest in both growth and value stocks.
Moreover, the two funds are passively managed, so their asset turnover rates are low while tracking errors are minimal as well.
Vanguard has managed to trim its annual management fee to a point that both VTSAX and VFIAX are among the cheapest investment vehicles in the industry. The two currently charge a 0.04% annual expense ratio.
Similar Returns & Overall Performance
In terms of performance, both VTSAX and VFIAX have delivered similar gains to investors during the same holding periods. The most pronounced difference at the moment is found in the one-year period where VFIAX’s gains have exceeded those of its peer by 140 basis points.
However, in the long run (since inception), the VTSAX fund has produced 40 basis points more in percentage gains to investors.
Although the two funds offer exposure to the US equity markets in different ways, the companies that have the higher weight within the portfolios are almost the same. At the moment this is written, Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN), and Tesla (TSLA) are the top five holdings.
Here are the top holdings for each of the funds:
|Top Holdings (VFIAX)
|Top Holdings (VTSAX)
|Berkshire Hathaway Inc.
|Berkshire Hathaway Inc.
|Meta Platforms Inc.
|Meta Platforms Inc.
|UnitedHealth Group Inc.
|UnitedHealth Group Inc.
|Johnson & Johnson
|Johnson & Johnson
Here is the portfolio composition by sector for each of the funds:
|Equity Sector Diversification (VFIAX)
|Equity Sector Diversification (VTSAX)
|Communication Services: 9.60%
|Basic Materials: 2.10%
|Consumer Discretionary: 11.80%
|Consumer Discretionary: 15.30%
|Consumer Staples: 6.20%
|Consumer Staples: 5.10%
|Health Care: 13.30%
|Health Care: 12.60%
|Information Technology: 28.10%
|Real Estate: 3.50%
|Real Estate: 2.60%
VTSAX vs. VFIAX: Differences
Now that we have pointed out the similarities between these two funds, here are some of the characteristics that make them different.
Portfolio Turnover Rate
The portfolio turnover rate indicates how often a fund disposes or incorporates new instruments into its portfolio.
Even though turnover rates for both VFIAX and VTSAX are low, the percentage of the latter is higher, at 8%, compared to 4% displayed by VFIAX.
This indicates that the portfolio composition of VTSAX changes more often than that of its peer.
The price at which both VTSAX and VFIAX trade is markedly different. Currently, VTSAX is trading at $115.46 per share while VFIAX’s price is standing at $433.84 per share.
This means that the same $2,000 investment on each fund will result in a different number of shares held. Based on the prices quoted above, an investor would obtain 17.3 shares of VTSAX and 4.6 shares in VFIAX if a total $2,000 investment is made.
Number of Holdings
Even though these two funds aim to provide investors with exposure to the returns produced by the US stock market as a whole, since they track the composition of different benchmarks, their portfolio size is different.
As of 11/30/2021, VFIAX held a total of 512 stocks, a number that is consistent with the benchmark that the fund tracks – the S&P 500 index. Meanwhile, VTSAX held 4,156 stocks.
Return on Equity
The return on equity (ROE) is a financial ratio that measures how much money a company is earning per every dollar its shareholders have put into the business.
At the end of November 2021, the average return on equity of the companies held within the portfolio is 18.5% for VTSAX. Meanwhile, this same ratio stood at 21% for VFIAX.
What this indicates is that companies within the S&P 500 index, which is the benchmark that VFIAX tracks, are more profitable or use their capital more efficiently when measured against their shareholder’s capital.
VTSAX vs. VFIAX: Other Considerations
Aside from the variables we have cited above, the following is a selection of other metrics that may also help investors in picking among these two funds.
The standard deviation of a financial instrument indicates the volatility that its performance has experienced during a certain period. Simply put, if a fund has delivered average annual gains of 7% but has a standard deviation of 5%, this means that the fund has produced gains in a range between 2% and 12% during the studied period.
In the case of VTSAX, the standard volatility of the fund stands at 18.16 according to data from Morningstar. Meanwhile, the standard deviation of VFIAX is lower, at 17.42.
Risk factors for mutual funds tend to focus on the deviation between the fund’s performance and that of its benchmark along with its relative volatility. To analyze VFIAX and VTSAX, we can focus on the fund’s alpha and beta measures.
Alpha measures the difference (positive or negative) between the fund’s performance and that of its benchmark. VFIAX’s alpha stands at -0.03 at the moment according to data from Morningstar while the same metric for VTSAX stands at -1.03.
Overall this indicates that VFIAX’s portfolio managers have done a better job at selecting the securities that will comprise their portfolios to track the performance of the fund’s benchmark but they have still failed at delivering better-than-benchmark results.
Meanwhile, the beta for VFIAX stands at one while that of VTSAX stands at 1.04. Beta is a measure of risk expressed as the deviation between a fund’s performance and that of its benchmark.
Based on these readings, VFIAX seems to expose investors to the same level of risk as that of its benchmark — the S&P 500 — while VTSAX is riskier as its beta is above one.
The Sharpe ratio measures the performance of a financial instrument relative to the risks it assumes. The higher the Sharpe ratio the better as it means that the fund is generating higher returns per every unit of risk it takes.
For VFIAX, the Sharpe ratio stands at 1.38. Meanwhile, for VTSAX, that same ratio stands at 1.32. Between the two, VFIAX is delivering better risk-adjusted gains as its Sharpe ratio is higher.
Morningstar is a well-reputed financial service and research firm that provides insightful data on hundreds of thousands of securities, including mutual funds.
The research team at this firm rates these funds based on their performance and risk against the average of their respective category.
According to the site, VTSAX is rated as above average when measured against its category peers in terms of both performance and risk.
Meanwhile, VFIAX is rated average in terms of its risk versus its category peers and above average in terms of its returns versus the same group.
VTSAX vs. VFIAX: Verdict
To choose which of these two funds might be a better pick for investors, I will focus on the following aspects: performance, risk, and volatility.
In terms of performance, VFIAX has delivered better short-term and long-term gains than VTSAX except when measured since their respective inceptions. Additionally, the Sharpe ratio of VFIAX is 0.06 points higher than that of VTSAX, meaning that the fund generates more gains for every additional unit of risk it assumes.
Meanwhile, when it comes to risk, VFIAX has the lowest negative alpha among the two while its beta is closer to one. In other words, its performance is the same as that of the benchmark it tracks.
As for the fund’s volatility, the standard deviation of VFIAX is lower than that of VTSAX, meaning that its historical gains fluctuated less than those of its peer.
That said, one additional factor to consider is related to the fund’s concentration. In this particular aspect, 31.4% of VFIAX’s assets are concentrated among its top ten holdings, which include primarily top tech firms.
That percentage is 514 basis points lower for VTSAX at 26%, which exposes this fund to a potential decline if valuation multiples assigned to the tech sector shrink in future instances.
VTSAX vs. VFIAX: How to Invest
Most brokerage firms will allow investors to purchase shares on any of these two funds. Some of the brokerage firms that investors can opt to sign up with for this purpose are TradeStation, E*TRADE, and Firstrade.
Meanwhile, it is also possible to open an account with Vanguard directly to invest in any of these two funds as the company owns and operates the two.
VTSAX vs. VFIAX: Alternatives
That said, they are not the only vehicle through which this can be done, as exchange-traded funds (ETF) have emerged as a more cost-effective and liquid alternative.
These are two of the ETFs that are currently being offered by Vanguard that seek to mimic the performance of VTSAX and VFIAX.
The Vanguard Total Stock Market ETF (VTI) mimics the performance of the VTSAX mutual fund. Since this is an exchange-traded vehicle, the minimum investment to get exposure to the holdings in which this fund invests is the price of the ETF at any given point in time (in other words the cost of one share).
Meanwhile, some brokers may even allow investors to buy fractional shares of this ETF instead of a whole share. VTI currently manages $1.3 trillion for investors and charges an annual management fee of 0.03%.
The Vanguard S&P 500 ETF (VOO) is the exchange-traded alternative presented by this financial services firm to investors who prefer this type of vehicle instead of the VFIAX mutual fund.
Same as with VTI, the minimum investment to open a position in VOO is the price of one share or even lower if your brokerage firm allows buying fractional shares.
The expense ratio of VOO is also 0.03% and the fund currently manages $827.2 billion for investors.
Frequently Asked Questions About VTSAX vs. VFIAX
The following are some of the most frequently asked questions we get on the topic of VTSAX vs. VFIAX.
Is VFIAX a Good Long-Term Investment?
The returns generated by VFIAX for long-term holders (5 and 10-year horizons) have been quite attractive at 17.9% and 16.1% per year respectively.
Is VTSAX Better than VTI?
VTI is the ETF version of VTSAX. One aspect in which VTI is better than VTSAX is that the former charges one basis point less than the latter in annual management fees.
Additionally, the minimum investment in VTI is the price of the ETF at any given point in time while VTSAX requires a minimum $3,000 investment.
Does VFIAX Pay a Dividend?
Yes. VFIAX pays a quarterly dividend. On February 28, 2022, the fund’s 30-day SEC yield stood at 1.33%.
Why Is VTSAX So Popular?
VTSAX is a long-standing fund that has been active since 2000, providing investors from multiple latitudes with exposure to the attractive US equity market. Since the fund charges a meager 0.04% annual management fee, it is one of the best alternatives for passive individual and institutional investors who can use it to build diversified portfolios.
When it comes to investing in US equities via mutual funds, these two products stand out among the portfolio of alternatives offered by The Vanguard Group. Of the two, VFIAX seems to be the winner in terms of performance, risk, and volatility. That said, VFIAX’s holdings are also more concentrated from a sectoral perspective and that is a factor to take into account when deciding which of the two funds will make it to the portfolio.
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Alejandro is a financial writer with 7 years of experience in financial management and financial analysis. He writes technical content about economics, finance, investments, and real estate and has also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing and financial analysis.