vanguard U.S. Equity Index Fund

panwaikah

Vanguard U.S. Equity Index Funds produce good results but they only track the S&P500

ColdIron

Except it doesn't. See post #5

A_T

lonewolf123 wrote: »

Same will be interested to know if there is anything better out that that tracks the S&P total market and not just 500.

Willing to pay those extra percentile points to get the "total" exposure.

S&P500 or S&P Total - it makes very little difference.

londoninvestor

panwaikah wrote: »

Vanguard U.S. Equity Index Funds produce good results but they only track the S&P500

I know you're just racking up 10 posts before you can post a spam link - but do you mind making them meaningless and mildly irritating, like most spammers, rather than posting information that's actually incorrect?

bowlhead99

IanManc wrote: »

I suppose it depends what you mean by "very little difference".

If you compare Vanguard US Equity Index Fund with an ordinary cheap S&P500 index tracker such as HSBC American Index you find that the HSBC fund invests in 506 companies whereas the Vanguard one invests in 3362, so Vanguard is investing in 2856 more businesses.

The HSBC fund has a concentration of 22.02% in its top ten holdings, whereas the Vanguard one has 16.86%.

The HSBC fund is 0.65% invested in businesses with a market cap of between £1billion and £5billion, while the Vanguard fund is 9.19% invested in such businesses, and the HSBC has no investments in businesses with a market cap of under £1billion, while the Vanguard fund has 2.09% in such businesses.

You're right that it does depend on what people mean by very little difference - but the clear 'differences' you describe in number of companies and size of company do not necessarily get people excited.

If the 2856 extra businesses in Vanguard have weighted average returns which are broadly correlated and consistent with the first 500 businesses over a long time period (obviously some will be ahead in some periods and not in others) then the more diversified fund will not necessarily translate to a material performance difference over a decade. Or it might translate to one, but you won't know if it's going to be for better or worse, depending of the direction of the economy and change in mix of the various components.

In the UK, we could look at FTSE All-Share vs 100 and see that it makes sense to capture the extra market in a 'better' tracker if it's cheap enough to do so, but 80% of the all-share is exactly the same as the 100 so the performance charts will look similar. So it goes in the US, where 23 trillion of the S&P500 makes up most of the 28 trillion market cap you'd get by looking at 3-4000 stocks.

However, in the UK, the FTSE100 is concentrated in a few massive companies and industries with 45% of the value (£800bn of £1780bn) in just 9 companies at the end of Feb. As you get out to FTSE All share level those 9 companies still make up 36% of the total. By contrast the US is more diversified and when you buy a US index, the $4.7 trillion vested in the top 9 players is under a quarter of the 500 and is 'only' going to be about 15% or so of the total market.
.
(using top 9 rather than top 10 because both indices have companies which have multiple share classes and feature twice in the top 10 - Shell and Alphabet)

So, an argument can be made that in the UK, the FTSE100 is a pretty terrible index to own as a diversified solution and you would be sensible to upgrade your investing to the all-share because every little helps when you are trying to get away from a crazy concentration in those few miners and oilers, big pharma and banks. Whereas with the S&P500, which is not a bad index, you already have exposure to $17 trillion of companies which aren't Microsoft / Google / Amazon / Apple / Facebook / BoA/ JPM etc, and you perhaps don't gain a whole load of extra variety or performance by dropping the top 9 players from 18% to 15%, so why bother.

bowlhead99

IanManc wrote: »

I did know about the multiple share classes in the top ten, which is why I referred to "top ten holdings" not top ten companies when I was discussing concentration.

Yes, I didn't think you didn't know - I just normally talk about companies as they're more relatable than "holdings" ; but any of the figures I could find quickly on a factsheet would be for 10 holdings rather than 10 companies... while some readers might be cynical of me talking about top 9 rather than a nice round 5 or 10 - as if I was just being very selective to get the stats to fit a point of view - so I explained myself just in case

I pretty much agree with your "why bother" conclusion.

My take on it is that if smaller companies haven't performed massively differently to large companies in the US in recent years, the action of diluting a large dose of large companies with a few percent of small companies from an index will not necessarily change your fortunes, and won't be a definitive major benefit to add those next couple of thousand companies in the same market into your holding.

However, if there isn't a major cost impact associated with it, you can easily turn around "why bother broadening your US holdings" into "why not broaden your US holdings" and I would personally prefer to buy the broader fund for only a few more basis points of cost which get lost in the roundings.

Reluctantpensioner

Vanguard US Equity Index... is a great fund, relatively low cost and well respected.

But you already have a major holding in it.
VLS80, for example includes 19% directly, and probably quite a bit indirectly in Vanguard Dev World ex UK. That would already be about £2000 of your £5000.

So, as long as your question is: I want to increase my US concentration in my portfolio: is Vanguard US good? ..
then go ahead.

But understand that many people posting here are questioning if that is too heavy in US equity.
Some pundits criticise the VLS funds as being too US heavy for what are meant to be diversified funds for a UK customer.