Vanguard Total Stock Mkt Idx Adm Fund

A one-stop shop for all US stocks.

Brendan McCann

Associate Analyst

Summary

Vanguard Total Stock Market funds offer highly efficient, well-diversified exposure to the entire US stock market while charging rock-bottom fees—a recipe for success over the long run.

The fund tracks the CRSP US Total Market Index, which represents nearly the entire investable US stock market. The index weights constituents by market cap after applying liquidity and investability screens to ensure the index is easier to track.

Market-cap weighting forms the bedrock of this strategy. It harnesses the market’s collective wisdom on each holding’s relative value with the added benefit of low turnover and trading costs. It’s a sensible approach because the market tends to do a good job pricing the large-cap stocks that make up the bulk of this portfolio. Large-cap stocks attract widespread investor attention, so prices quickly reflect new information.

Total-market funds mitigate transaction costs because they don’t target specific segments of the market and aren’t forced to buy or sell stocks when they enter or exit a market segment. Still, a small amount of turnover can occur at the lower rungs of the portfolio. The index implements buffer rules around its lower market-cap bound to limit unnecessary turnover. That’s a key feature since dealing in thinly traded small and micro-caps can increase transaction costs. The index further reduces trading costs by rebalancing over several days to limit market impact costs.

The index includes small- and micro-cap stocks, which improve the end portfolio’s diversification and can provide a modest performance edge when small caps rally, as they did in the fourth quarter of 2020. They tend to be more volatile than large-cap stocks but have minimal impact at less than 10% of the portfolio.

Market-cap weighting may expose the strategy to stock- or sector-level concentration risk when a few richly valued companies or sectors power most of the market gains. However, this strategy is less concentrated than its average peer in the US large-blend Morningstar Category. At year-end 2024, the fund held around 32% of its assets in the top 10 stocks compared with 50% for its average peer. No sector deviated more than 2 percentage points compared with peers. The funds’ heavy allocations to the technology sector could present some risk, but that is not a fault in the strategy’s design. The CRSP US Total Market Index simply reflects the market’s composition. In the long run, its broad diversification, low turnover, and low fee outweigh periodic concentration risks.

by Brendan McCann

This strategy constructs a broadly diversified portfolio that accurately captures the entire investable US equity market.

Brendan McCann

Associate Analyst

Process High

It also keeps a lid on turnover by leveraging the market’s collective wisdom to size its positions. These simple yet effective traits earn a High Process Pillar rating.

The fund tracks the CRSP US Total Market Index. The index ranks all US stocks by their float-adjusted market cap after they pass basic liquidity and volume screens to ensure investability and easier tracking. Eligible stocks must have a market cap of at least USD 15 million and at least 12.5% of total shares publicly available. The index implements buffers along the lower market-cap bound to mitigate unnecessary turnover. It also spreads the rebalancing process over a five-day period to reduce potential market impact costs. The index reconstitutes quarterly.

The strategy approximates the contours of the US stock market because it relies on the market’s collective wisdom to size stock and sector weightings. Its sector composition is in line with the US large-blend category average, with no sector deviating more than 2 percentage points as of year-end 2024. Its value-growth bias also falls in line with its category peers.

Market-cap weighting consistently guides the index toward the largest and most established names. Small-cap stocks represent a much smaller slice of the portfolio. About 90% of the strategy’s assets represented companies with a wide or narrow Morningstar Economic Moat Rating at year-end 2024.

This portfolio tends to diversify away stock-specific risk. It has been significantly less concentrated than its average peer from its inception through year-end 2024. The strategy held 32% of its portfolio in the top 10, versus the US category average of 51% at year-end 2024. However, the fund’s share of assets in the top 10 holdings more than doubled since 2015. Apple and Microsoft have been fighting for the top two spots, and their collective share of the portfolio grew to 12% from 4% during that time.

by Brendan McCann

Vanguard's equity index group earns an Above Average People Pillar for its well-supported and stable management team adept at leveraging Vanguard's comprehensive resources.

Brendan McCann

Associate Analyst

People Above Average

Its portfolio managers benefit from the firm's global infrastructure and advanced portfolio management technology, which facilitates cost-efficient trading around the globe. The infrequent turnover of managers, coupled with Vanguard's practice of rotating them across various funds, enhances their expertise and understanding of different market segments.

The fund's managers directly handle trading, providing them with deeper insights into the portfolio's operations than a stand-alone trader might have. They are backed by a global team of dedicated personnel and employ sophisticated, scalable technology to minimize their workload and enhance tracking accuracy. Vanguard's independent risk-management team plays a crucial role in ensuring its funds adhere to predetermined tracking tolerances. It collaborates closely with the managers to oversee trades and address potential issues proactively. Vanguard compensates managers based on tracking error and excess return metrics to foster a culture of accountability and ensure that the management team's interests are closely tied to investors'.

by Brendan McCann

The Vanguard Group retains a High Parent rating as its new CEO settles in.

Daniel Sotiroff

Senior Analyst

Parent High

Former BlackRock executive Salim Ramji succeeded Tim Buckley as Vanguard’s fifth chief executive officer on July 8, 2024. Ramji left BlackRock in January 2024 as its global head of iShares and index investing, and his appointment represents a departure from Vanguard’s historical norm. The firm’s prior CEOs came from its internal executive ranks, making Ramji the first external candidate to take the reins.

Ramji inherited a firm that is succeeding in many ways. Recent fund launches fit the low-cost Vanguard mold, and it cut the minimum investment for its popular robo-advisor platform to just USD 100 from USD 3,000. Investor-friendly efforts like those are part of the reason Vanguard hasn’t struggled to garner assets. It managed more than USD 9.1 trillion from roughly 50 million clients globally at the end of June 2024. It took in more than USD 144 billion over the first half of the year, second only to BlackRock.

Yet, there’s no shortage of challenges awaiting Ramji. Vanguard hasn’t been immune to investors abandoning actively managed mutual funds for low-cost exchange-traded funds. Customer complaints remain a sore spot, and Vanguard recently received some backlash for raising fees on some of its brokerage services. It has struggled to grow outside of the US. Efforts to expand in markets like Germany and China were abandoned after only a few years.

Vanguard’s investor-first mentality remains its North Star. It has invested heavily in its advice business and ETF lineup over the past several years. Ramji accumulated a lot of experience in both areas at BlackRock, but it remains to be seen what his appointment means for Vanguard’s direction.

by Daniel Sotiroff

This strategy accurately represents the investable US equity market, allowing the fund to leverage its cost advantage and drive sound category-relative performance.

Brendan McCann

Associate Analyst

Performance

The fund’s low fee should help it beat its pricier US large-cap peers over the long run.

The strategy’s performance closely follows the ups and downs of the US stock market, since it is always fully invested. All else equal, this strategy should outperform its peers that hold cash during market rallies. Likewise, the strategy should lag similar peers when the market falls because it lacks a cash buffer.

After declining approximately 20% in 2022 amidst a series of interest-rate hikes, increased economic uncertainty, and higher inflation, the CRSP US Total Market Index staged an outstanding rally in 2023, albeit with above-average volatility. It climbed back 26% as a few names and sectors powered gains. Technology, communication services, and consumer cyclical stocks outperformed the market by a large margin, which this strategy captured through its broad reach and market-cap weighting.

This fund should benefit slightly when small-cap stocks outperform large-cap stocks, as they did in the fourth quarter of 2020. Likewise, when the CRSP US Total Market Index becomes concentrated in a few large companies, the strategy can become top-heavy. This exposes the funds to dramatic drawdowns when the US market’s largest holdings collectively decline.

by Brendan McCann

It’s critical to evaluate expenses, as they come directly out of returns.

Brendan McCann

Associate Analyst

Price

Based on our assessment of the fund’s People, Process, and Parent Pillars in the context of these expenses, we think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Medalist Rating of Gold.

by Brendan McCann