Author Topic: VTI Not doing it's Job  (Read 1169 times)

FIREandMONEY

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VTI Not doing it's Job
« on: February 24, 2021, 01:44:04 PM »
I thought this was a very interesting article.  I'm assuming this applies to VTSAX as well.  I was always under the assumption that VTI/VTSAX was about 80% S&P 500 and 20% Mid/Small-Cap stocks likes the Russell 2000.  This article is saying it's more like 96/4%.  Thoughts?

https://seekingalpha.com/article/4407727-vti-is-not-really-job
« Last Edit: February 24, 2021, 01:54:01 PM by FIREandMONEY »

FIREandMONEY

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Re: VTI Not doing it's Job
« Reply #1 on: February 24, 2021, 01:53:13 PM »
Reading the comments, it looks like most agree with me.  Strange article.

Laserjet3051

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Re: VTI Not doing it's Job
« Reply #2 on: February 24, 2021, 06:30:43 PM »
I thought this was a very interesting article.  I'm assuming this applies to VTSAX as well.  I was always under the assumption that VTI/VTSAX was about 80% S&P 500 and 20% Mid/Small-Cap stocks likes the Russell 2000.  This article is saying it's more like 96/4%.  Thoughts?

https://seekingalpha.com/article/4407727-vti-is-not-really-job

Unable to read that article but Morningstar reports as of today that VTSAX and VTI are ~22% small/mid cap stocks, as expected. Have no idea what is being claimed but my VTSAX and VTI seem to be doing exactly what I expect them to do.

Kem

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Re: VTI Not doing it's Job
« Reply #3 on: February 24, 2021, 06:35:40 PM »
Article is junk.

Claims VTI, which represents market in proper weights, doesn't give enough exposure to small cap. 

Doesn't confirm holdings weights VS market.... Only a cherry picked returns correlation VS 500...and a misleading weight assumption.

Goes on to praise a split of ETFs that gives small cap an outsized portion of ones portfolio.

ChpBstrd

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Re: VTI Not doing it's Job
« Reply #4 on: March 10, 2021, 08:04:57 AM »
Depends what we mean by "its job". I'm sure all of Vanguard's funds are doing exactly what their prospectuses (prospecti?) say, but what the author means is that you don't get more diversification from having 3600 market-weighted stocks vs. the S&P500. On a more theoretical economics level, the point could be made that the efficient frontier is not expanded when you already have 500+ stocks and then add a couple thousand more. Thus there are diminishing returns to diversification (an already well-known fact).

I think the article might have been more clear if it said something like "buying VTI doesn't sufficiently diversify investors from the S&P 500 because large caps are so exponentially bigger than small caps that a market weighted fund is still 96% large-cap." and "investors who want to hedge against the possibility of lower multiples for large tech companies, stagnation of large companies, or a resurgence in value investing should consider specific ETFs".

Investors worried about particular narratives, such as Apple being disrupted by a Chinese competitor, Amazon being disrupted by a new distributed server technology they can't monetize, laws making companies like Microsoft liable for hacks of their software, or antitrust action against any of them, could be interested in buying an S&P 600 or Russel 2000 fund. Of course, doing so involves discounting the competing narrative that these giant corporations will take over the economy and push out the small-caps. It also involves discounting the narrative that PE ratios need to fall back to earth, because small-caps have historically had very high PE's. https://siblisresearch.com/data/russell-2000-pe-yield/

MustacheAndaHalf

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Re: VTI Not doing it's Job
« Reply #5 on: March 10, 2021, 10:42:26 AM »
The article claims that:
"The 3095 companies who are not members of the S&P 500, but part of VTI, account for less than 4% of VTI, and this why they have almost zero impact and the total returns for the long-run"

Morningstar data shows VTI is 7% small cap stocks, while VOO has 0% small cap.  The article's claim also ignores weighting: VOO weights 82% to large gap, while VTI weights 72% large cap.  Those large cap stocks are members of both ETFs, but that doesn't mean they have the same weight.  The claim of 96% similar makes no sense to me.
https://www.morningstar.com/etfs/arcx/voo/portfolio
https://www.morningstar.com/etfs/arcx/vti/portfolio

Maybe they could make a case that VTI and VOO are too correlated.  Skipping the 2008 crash and recovery in Mar 2012, I checked correlations over the past 9 years (Mar 2012 - Mar 2021).  The S&P 500 and S&P Small Cap were 0.86 correlated over that time frame, according to Portfolio Visualizer's data.  But if you only care about correlations, the ideal diversifier seems to be REITs (with 0.62 correlation to S&P 500).