Total market index funds include both mutual funds and exchange-traded funds (ETFs) that take as their benchmark a certain equity index (as their name implies): the Russell 3000 Index, the S&P 500 and the Wilshire 5000 Total Market Index, to name a few. By investing in stocks in their benchmark index, the fund’s portfolio performances aim to ape its performance (before fees and expenses, of course).
Typical holdings of total market index funds include domestic U.S. stocks of major well-known corporations and less-known companies with smaller market capitalizations. Some of these small public companies are thinly traded, resulting in high trading spreads and significant transaction costs paid by total market index funds. Overall, total stock market index funds typically contain a wide range of equities, providing the biggest diversification within the U.S. equity market an investor can get.
The 2000s have seen an explosion of index funds. Here are a quartet of hot ones right now. All figures are current as of October 2018.
Vanguard Total Stock Market Index
The Vanguard Total Stock Market Index (VTSMX) seeks to track the investment results of the CRSP U.S. Total Market Index, which is composed of approximately 100% of the investable U.S. stock market and includes many companies of various market capitalizations primarily traded on the New York Stock Exchange and NASDAQ.
Technology companies account for the largest share of VTSMX’s portfolio – 22.3% of it. Financial services companies have 15.6% allocation. Healthcare companies (14.5%), consumer cyclical companies (12.3%) and industrial companies (11%) round out the top five sectors of the portfolio.
About 70% of VTSMX’s assets are invested in large market-cap companies. Medium companies account for 19% of the fund’s portfolio, and small companies have 9% allocation. So the fund’s portfolio is well-diversified, and its top five holdings account for approximately 11.7% of total invested assets. They include such household names as Apple, Inc., Microsoft Corp., Amazon.com, Berkshire Hathaway and Facebook.
From 2008 to 2018, VTSMX has generated an annual average return of 11.96% (vs. 12.08% for its benchmark). The fund has a four-star rating from Morningstar. It has no load fees, and its annual expense ratio stands at 0.14%. VTSMX is most appropriate for investors looking for very broad diversification and exposure to major U.S. corporations at a low expense ratio, and with emphasis on technology and the financial services sectors.
Schwab Total Stock Market Index Fund
The Schwab Total Stock Market Index Fund (SWTSX) tracks the total return of the entire U.S. equity market as measured by the Dow Jones U.S. Total Stock Market Index. SWTSX currently focuses on the sectors of technology (22.4% allocation), financial services (15.6%), healthcare (14.4%), cyclical consumer (12.4%) and industrial (10.9%). Large market-cap stocks account for about 70% of the fund’s portfolio. SWTSX’s top five holdings are the same as the Vanguard Fund’s of SWTSX and make up the same amount of the portfolio – 11.7%.
From 2008 to 2018, the fund has generated an annual average return of 12%, outperforming its benchmark’s of 10.8%. SWTSX has a rating of four stars from Morningstar and an expense ratio of 0.05%, with no load fees. This fund is most appropriate for investors who want to have total market exposure at the lowest possible expense.
iShares Russell 3000
The iShares Russell 3000 (IWV) is an exchange-traded fund that tracks the performance of the Russell 3000 Index, which measures the investment results of the broad U.S. equity market. Like its peers, IWV uses an indexing approach and selects a sample of stocks that represent the underlying benchmark. IWV’s sector allocations and top holdings are very similar to the Vanguard and Schwab funds’, and as with the other two, the top five make up 12% of its portfolio. The fund invests about 75% of its assets in large-cap companies.
From 2008 to 2018, the fund has generated an annual average return of 11.8%. IWV has a four-star rating from Morningstar. Its annual expense ratio is 0.2%, which is twice as high as that for the Schwab Total Stock Market Index fund. This fund is appropriate for investors who want to follow the Russell 3000 Index and do not mind incurring higher fees.
Wilshire 5000 Index Investment Fund
The Wilshire 5000 Index Investment Fund (WFIVX) is a mutual fund that tracks the investment results of the Wilshire 5000 Index, a capitalization-weighted index of the market value of all actively traded U.S.-headquartered stocks. While the index has around 3,600 companies, the fund typically holds 1,000 to 2,500 stocks with a bigger emphasis on large market-cap companies that account for 74% of the fund’s portfolio. Medium or mid-cap companies have 18% allocation, while small-cap companies have 8% allocation. The fund’s portfolio concentrates to the same degree as the other three funds on the technology, financial services, healthcare, consumer cyclical and industrial sectors. However, its top five holdings comprise only 14% of its portfolio, lower than its peers, and it alone includes Alphabet Inc. (Google’s holding company) in the top quintet.
The fund has generated an annual average rate of return of 13.35% from 2008 to 2018. It has a three-star rating from Morningstar. WFIVX has no load fees and can be purchased commission-free through multiple investment brokers platforms. Still, it comes with a steep annual expense ratio of 0.63%, which is significantly higher when compared to its peers. WFIVX is most appropriate for investors who wish to follow the performance of the Wilshire 5000 Index and who do not mind high fees charged by the fund.