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VTI vs VOO: Which is the best ETF to bet on America?

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Warren Buffett has always warned investors on the risks of betting against America for decades. His bullishness has paid off as evidenced by the performance of Berkshire Hathaway, a company that has attained a market cap of over $1 trillion

More companies like Apple, Nvidia, and Microsoft are now valued at over $3 trillion, while Amazon and Google are getting close to a $2 trillion valuation. Similarly, the S&P 500 index has jumped from about $68 in 1975 to almost $6,000 today.

There are many ways to bet on America. One of them is to invest in all American stocks and the other is to focus on a subset of US companies. The Vanguard Total Stock Market ETF (VTI) and the Vanguard S&P 500 ETF (VOO) are two of the cheapest funds to bet on America.

Vanguard Total Stock Market | VTI

The Vanguard Total Stock Market ETF is one of the biggest funds in the market with over $440 billion in assets under management. 

It is a popular fund that tracks the CRSP US Total Market Index, which focuses on all American companies listed in the US. 

According to its website, it has a small expense ratio of 0.03%, and has invested in 3,654 American stocks. It has a price-to-earnings ratio of 26.5 and a price-to-book ratio of 4.3, and a return on equity of 24.

By focusing on all American companies, it means that technology is the biggest part of the fund with a 33.45 stake. The other biggest segments in the fund are consumer discretionary, industrials, health care, financials, and consumer staples.

The biggest companies in the fund are the likes of Apple, Microsoft, NVIDIA, Amazon, Meta Platforms, and Alphabet. Therefore, while the fund tracks all companies in the fund, the top ten firms accounts for 29% of the fund. 

The VTI’s average annual return is about 8.8%. Its total five-year return was 104.46%, while its return this year was 22.5%.

Vanguard S&P 500 ETF | VOO

Like the VTI, the VOO ETF is another popular cheap funds in the market. It has a 0.03% expense ratio and tracks the 500 biggest companies in the US. 

Data shows that it has over $528 billion in assets, and is one of the fastest-growing funds in the market in terms of inflows. The fund has added over $50 billion in assets this year, and is closing in on the S&P 500 ETF because of its cost advantage.

Instead of tracking all companies, it focuses on the 500 biggest companies in the US. As a result, its constituent structure is similar to that of the VTI fund. The biggest companies in the fund are in the tech sector (31.67%), followed by financials, healthcare, consumer discretionary, and communication services. 

The most notable names in the fund are Apple, Microsoft, Nvidia, Amazon, Meta Platforms, and Alphabet. Its top-ten holdings account for 34% of the entire fund. 

The VOO ETF is more expensive than the VTI, with its P/E ratio of 27.4 and price-to-book ratio of 4.8%

Read more: 4 key catalysts for the Vanguard S&P 500 ETF (VOO)

Better buy between VTI and VOO ETFs

So, which is the better ETF to buy if you are betting on America? The VOO ETF has been a better performer in the last five years as its total return was 110% compared to VTI’s 104%. As shown above, this trend has happened this year as the two have risen by 23.7% and 22.54%, respectively.

The two ETFs are highly correlated, meaning that they always have a similar performance over time. Besides, the top ten holdings account for over 25% of the entire fund. 

Stilll, the Vanguard S&P 500 ETF seems like a better fund since it focuses on fewer bigger American companies.

This also explains why the Invesco NASDAQ 100 (QQQM) ETF has been a better fund than the two. It tracks 100 companies, with 52% of them being in the technology sector. The rest companies are in the communication, consumer cyclical, and consumer defensive sectors. 

Looking ahead, the VTI and VOO ETFs will likely continue doing well in the long term, helped by several catalysts. Corporate earnings have been relatively strong in the past few weeks, the US has avoided a hard landing, and interest rates are coming downwards.

Lower rates will likely push funds that have been invested in money market funds into the stock market. Recent data shows that these funds are worth approximately $6.7 trillion. In a recent note, analysts at Goldman Sachs estimated that the S&P 500 index will rise to $6,200 by year end, saying:

“The equity market selloff is canceled, and a year-end rally is starting to resonate with clients shifting from hedging from the left-tail to the right-tail as institutional investors are getting forced into the market right now.”

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