The Vanguard Total Stock Market Index Fund (VTSAX ) is the largest issuer of mutual funds and the second-largest issuer of exchange-traded funds (ETFs). The fund offers investors exposure to the entire U.S. stock market by tracking the CRSP U.S. Total Market Index. The fund comprises almost all investable stocks in the United States.
The fund invests in small-, mid-, and large-cap growth and value equities listed on the Nasdaq and the New York Stock Exchange (NYSE). The fund uses a representative sample approach to approximate the index and its characteristics. As of 17 March 2022, the fund has assets worth $266.05 billion invested in 4074 different holdings.
Some Important Points To Consider
- Over the last decade, Vanguard’s popular Total Stock Market Index Fund matches or lags the S&P 500. It offers both mutual fund and exchange-traded fund share classes.
- VTSAX, the Admiral Shares mutual fund, was previously exclusively available through Vanguard. However, there are benefits to holding the mutual fund rather than the ETF, VTI. At other brokerages, you can purchase VTSAX for a significant charge.
- Vanguard has changed because of its expansion, making it a difficult place to hold investments right now. Vanguard investors have paid a high price for that expansion, which outweighs the minor cost savings from a lower expense ratio.
- Vanguard did not invest in the infrastructure that supports the trillions of dollars in new investments. Vanguard’s customer service is mediocre to poor, its technology is outdated, and the company is now focusing on selling fee-based adviser services rather than cutting costs.
- Vanguard’s mobile app previously allowed customers to trade funds and equities while also providing cost information. Recent “improvements” to the app have made trading with the app difficult, requiring clients to use a desktop interface to handle secondary accounts or view cost bases before trading.
Reasons To Fear A Fall In The VTSAX Price
The following are some of the reasons that indicate a possible decline in VTSAX price in the future.
Investors prefer funds that have a good track record. VTSAX is in the top third of its category, with a 5-year annualized total return of 16.08% and a 3-year total return of 19.85%.
When analyzing a fund’s performance, the standard deviation of the returns is also significant to consider. The standard deviation of an investment’s return shows its consistency, and price volatility is evident in a fund with a high standard deviation.
The standard deviation of VTSAX has been 18.35% over the last three years, compared to 15.02% for the category. The five-year average standard deviation of the fund is 16.33%. However, the category average is 13.2%. Hence, this has made the fund more volatile than its peers.
2. Risk Factors
The fund’s 5-year beta of 1.03 indicates that it will be as volatile as the market average. Because alpha measures a portfolio’s risk-adjusted performance against a benchmark, in this case, the S&P 500, it’s crucial to pay attention to this indicator.
Over the last five years, VTSAX has a negative alpha of -1.02, suggesting that managers in this portfolio have a tough time selecting equities that outperform the benchmark returns.
Examining a mutual fund’s equity holdings is also a worthwhile task, and it can show us the techniques fund managers use and if their approaches have any inherent biases. The concentration of VTSAX is primarily on equities trading in the United States.
Stocks account for 98.04% of the mutual fund’s holdings, with a market capitalization of $310.15 billion. The fund has maximum exposure to the following sectors: Technology, finance, and retail trade.
The index weights assets according to their float-adjusted market capitalization, thus favoring large-cap stocks. The large-cap market in the United States has a high level of information availability and liquidity, allowing the absorption of new information into pricing fast. Market-cap-weighting takes advantage of those prices to establish each stock’s weight in the most cost-effective way possible. This strategy encourages diversification while reducing unnecessary turnover.
However, during the high volatility in the market, market-cap weighting can expose the index to high stock- or sector-level concentration.
Costs are becoming more relevant in mutual fund investing, especially as the market becomes more competitive. And, all other things being equal, a lower-cost product has a competitive advantage. Thus, investors should pay particular attention to these criteria.
VTSAX is a no-load fund in terms of costs. It has a 0.04% percent expense ratio, lower than the 0.77% category average but higher when compared to its previous years. Although compared to its competitors, VTSAX’s cost is lower, it has not benefited VTSAX greatly.
Investors should be aware that the minimum initial investment for this product is $3000, with each subsequent investment of at least $1.
Investment in the infrastructure required to support such customers did not keep pace with the expansion of the customer base. Vanguard has not made much investment in the infrastructure that commensurates with the trillions of dollars investment of its investors. Many of these investors purchase Vanguard assets directly through their Brokerage Services.
To deal with the above problem, Vanguard reduced or removed the perks that it offered its long-term consumers. Furthermore, customer service has worsened that many investors cannot reach competent customer care representatives to fix issues, especially issues concerning accessing their accounts.
5. History Of The Fund Managers
Vanguard Group, based in Malvern, Pennsylvania, manages VTSAX. Since its inception in November of 2000, VTSAX has accumulated around $321.58 billion in assets, according to the most recent available data. Gerard O’Reilly has been heading the fund since November of 2000.
When John C. Bogle was CEO, Vanguard aimed to offer investors efficiently run mutual funds. It taught investors the importance of not trying to outperform the market returns but settling for a return that matches market returns.
Vanguard taught that the best way to do this was to invest in funds that tracked indexes that mimicked the market. Investors following Vanguard’s lead saw their portfolios eventually outperforming, if not outperforming, actively managed funds, hedge funds, and specialized investment advisors.
However, under the leadership of Gerard O’Reilly – Bogle’s successors- the goal seems to make Vanguard the most prominent asset management firm globally. With a flood of advertising, Vanguard has constantly pursued a policy of increasing the number of its brokerage clients, most of it being deceptive.
The Vanguard Total Stock Market Index Fund is best suited for risk-averse investors looking for low-cost exposure to the stock market in the United States. It might also be used in a portfolio as a single domestic equities fund.
Most of its holdings are in technology, industrial, financial, healthcare, and consumer service companies. VTSAX has a low expense ratio of 0.04% and requires a $3000 minimum commitment.
There are concerns about VTSAX’s poor performance and negative returns, the fund manager’s policy, and infrastructure. These concerns give the fear to investors that there is a possibility of VTSAX stock price declining in value.
Disclosure: The author is not a licensed or registered investment adviser or broker/dealer. They are not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.
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Tim Thomas has no positions in the stocks, ETFs, mutual funds, forex, cryptocurrencies, or commodities mentioned.
This article was produced and syndicated by Tim Thomas / Timothy Thomas Limited.
Featured image credit: Unsplash.