The market for exchange-traded funds (ETFs) has attracted trillions of dollars from investors. The Vanguard Group has done an excellent job in claiming its fair share of those assets, with its reputation for cost-conscious investing vehicles like index mutual funds serving it well in the ETF universe.
Vanguard offers dozens of different ETFs to meet the needs of its investors, with investment objectives ranging from narrow and highly tailored funds to ETFs that own the broadest swaths of stocks across the world. Below, we'll look at the three top Vanguard ETFs by assets under management to see why so many investors entrust them with their hard-earned investment capital.
The top Vanguard ETFs for 2020
Assets Under Management
Vanguard Total Stock Market (NYSEMKT: VTI)
Vanguard S&P 500 (NYSEMKT: VOO)
Vanguard FTSE Developed Markets (NYSEMKT: VEA)
Just buy the whole U.S. market
Vanguard has been a huge advocate of index investing throughout its history. It's therefore not surprising to see an ETF that aims to offer exposure to the entire U.S. stock market at the top of the list.
Vanguard Total Stock Market is an immense fund, holding almost 3,600 different stocks. The ETF has the objective of tracking the performance of the CRSP U.S. Total Market Index, which is a lesser-known benchmark for the domestic stock market. Just as large-cap stocks dominate the market, the fund holds more than 75% of its assets in shares of large companies. However, that still leaves roughly 17% of Vanguard Total Stock Market's assets in mid-cap stocks, 6% in small-cap stocks, and almost 1% in micro-cap stocks.
During 2019, Vanguard Total Stock Market performed well, posting a return of 31%. The ETF's small-cap and mid-cap exposure actually held back its performance for the year, however, as large-cap stocks happened to outperform in 2019. Over the long run, though, small caps have outperformed large caps, and Vanguard Total Stock Market hopes to turn that into a long-term return advantage in time.
Focusing on U.S. large-cap stocks
Vanguard S&P 500 takes the same approach that the largest ETF in the market takes: invest in the stocks that make up the S&P 500 index. Even though the massive SPDR S&P 500 ETF has more than double the assets that Vanguard's fund has, the fact that Vanguard S&P 500 has been able to get well into nine figures shows how popular the ETF provider is.
Vanguard S&P 500 beat out the return of Vanguard Total Stock Market in 2019 by less than a single percentage point, and most years, it's been a relatively close race that relies on whether small-cap stocks outperformed or underperformed the broader market. For those looking for simple exposure to U.S. stocks, either one of these ETFs does a good job.
Adding some global flavor
Vanguard FTSE Developed Markets isn't as big as the other two ETFs on this list, and that's consistent with how most U.S. investors think about their portfolios. For many, the U.S. is the most familiar market, making it most comfortable to invest there. Asset allocations to international stocks tend to be smaller.
However, for those seeking stable, secure investments overseas, Vanguard FTSE Developed Markets has its advantages. The ETF boasts almost 4,000 stock holdings spread across the globe, with almost 40% of assets invested in continental Europe, more than 20% to Japan, and another 15% or so to U.K. stocks. Canada, Australia, and other smaller Asian markets make up the remainder.
International markets couldn't keep up with the U.S. in 2019, but a nearly 23% return for the ETF last year was still a strong showing. For those seeking geographical diversification in their investments, adding Vanguard FTSE Developed Markets is a natural choice.
Find a place for these ETFs in your portfolio
Many investors put dozens of holdings in their investment portfolios, but the value of ETFs is that only a few funds can help you implement a complete investing strategy. With a combination of U.S. and global stocks, these three Vanguard ETFs could be the backbone of your stock portfolio if you're comfortable with a passive index investing approach.
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