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VV: Vanguard's Large Cap ETF Offers Exposure To New And Innovative Companies That You Don't Get In The S&P 500

Jun. 04, 2020 11:30 AM ETSPDR® S&P 500 ETF Trust (SPY), VVIVV, VOO18 Comments
Kyle Fishman profile picture
Kyle Fishman


  • The Vanguard Large Cap Index ETF tracks the CRSP Large Cap Index, which tracks the top 85% of the market capitalization of the U.S. equity market.
  • Vanguard's Large Cap Index is a little more diversified than the S&P 500, with 582 holdings.
  • Not all S&P 500 companies are included in Vanguard's Large Cap Index, as some are too small to be included.
  • Historically, Vanguard's Large Cap Index has outperformed the S&P 500. I believe this is because it is exposed to some faster-growing companies, and excludes some of the weakest components of the S&P 500.
  • To offer some perspective on the differences between the two indexes, it may be helpful to take a look at the companies within it.

I believe Vanguard's Large Cap ETF (NYSEARCA:VV) may offer some slight advantages over the S&P 500 (NYSEARCA:SPY), (IVV), (VOO), Index. Historically, VV outperformed SPY 288.47% to 265.41% since its inception in 2004. It outperformed during some bull years (2005, 2007, 2009, 2017, 2019) and during some bear years (2008, 2018.)

I previously wrote about the "Google Effect" -- a significant advantage VV has over SPY; as companies tend to rise on the news of being added into the S&P 500. The S&P 500 is structured to add companies at inflated prices, and conversely subtracts companies at deflated prices.

Beyond this advantage, I think it's more important to take a look at specifically what companies this ETF exposes you to. Knowing what you're investing in can give you a better perspective on whether this index fits your risk-reward goals, and whether you're exposed to the sectors and industries that are growing.

It should also be noted that VV applies something closer to a truly passive approach to investing, focused solely on a company's size and market cap... while the S&P 500 index, as 'passive' as it may be characterized, does apply some minimal criteria in an actively managed way to select its components.

I examined very carefully which companies are included in VV; but before we get into that, let's start by seeing what's excluded.

I used to assume that all of the S&P 500 companies were automatically included in VV, (as they are required to be large when they get added into the S&P 500; a minimum market cap of $8.2 billion); however; after getting into the S&P 500, a company can shrink in size, and still remain in the index for a while. Incredibly, there are several S&P 500 companies that are too small to be

This article was written by

Kyle Fishman profile picture
I am a long-term buy-and-hold investor from Cleveland, Ohio.I tend to invest in large-cap and sometimes mid-cap stocks.I believe it's important to catch a company in its early years; preferably at the IPO or recently thereafter. I believe the two best sectors to invest in during the next two decades will be Health Care for growth and Financials for value.I tend to ignore the opinions of hedge-fund managers or so-called "experts"....rather, my investment philosophy values the opinion of simple minds that come from humble backgrounds. I am always on a look-out for secular trends; I look for companies that benefit from aging boomers, rising interest rates, organic foods, and increased adoption of electronic payment systems.I tend to pay more attention to a company's qualitative aspects rather than quantitative.

Analyst’s Disclosure: I am/we are long VV, VOO, IVV, UBER. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (18)

Sanjay John profile picture
Good research, nice ETF, covers the new growth companies especially in software space, thanks for the great article.
nicholas davout profile picture
VV is definitely an improvement over VOO but it's still missing seemingly surefire growth positions like TDOC or DOCU for example.
Interesting analysis, I will put VV on my radar. Thanks
I sense a strong flavor of incoherence in some of the arguments pertaining to the attractiveness/justification for including some companies and excluding others.

As just one example, UNM is included in the list of those excluded from the Vanguard Large Cap Index and characterized as a "loser" (partly because of its decline in market cap); but UBER gets extolled as a winner because "it's ambitions are huge" and it "has a vision". Well ... So did WeWork -- and any number of others. Moreover, a side-by-side comparison of UNM and UBER -- in terms of both fundamentals and prevalent analyst opinions -- doesn't make UBER look like the obvious winner in anything OTHER than market cap. And this makes the justification for excluding UNM and including UBER come out to be more psychological/emotional than financial/analytic -- and I hope Vanguard isn't using criteria like that.

I'm afraid that considerations and examples like this detract from the usefulness and reliability of the recommendations favoring VV as an investment. And given the Risks/Challenges section and the Conclusion, I'm not sure what I'm supposed to think of it -- except that it's probably a coin flip between VV and a bunch of similar funds. Nothing compelling about it.
Kyle Fishman profile picture
I find your comparison of Unum and Uber rather odd.
one is a shrinking insurance company that no one has ever heard of,
the other is a fast-growing ridesharing disruptor, a transportation/technology company, and most people have heard of it because it plays a big role in their lives.
garkster profile picture
You may be misunderstanding a key point about ETFs. Vanguard runs the ETF based on the index -- the index is managed by CRSP according to their rules, and is known in industry parlance as the "underlying" index. As such, Vanguard plays absolutely no role in determining what goes into the index.

As stated in the author's 1st bullet -- "...top 85% of the market capitalization of the U.S. equity market". That's a rule, not psychological/emotional.
Actually, I think I understand that pretty well. I was making a different point regarding the author's approach and justification for choosing between investments in this case -- particularly in light of his introduction of the distinctions he employed.

Indeed, in his profile the author lists his approach as including such fundamental considerations as "I believe it's important to catch a company in its early years", "my investment philosophy values the opinion of simple minds that come from humble backgrounds", and (most telling) "I tend to pay more attention to a company's QUALITATIVE aspects rather than quantitative". [emphasis mine]

His evaluation of the "goodness" of VV really rests on this "investment strategy" -- and it's an approach, though one more subjective in ways that I prefer to avoid.

Perhaps my point should be viewed as the observation that when an attempt is made to bolster or justify investment choices made on these "simple" and "qualitative" principles by an appeal to quantitative considerations (which the author introduced in his comparisons), some incoherence and cognitive dissonance can result -- because it shrouds the use of emotional/intuitive/qualitative criteria in quantitative trappings incompatible with them. And so the result is an unconvincing argument regarding the benefits and attractiveness of a particular investment under consideration. At least I find this particular recommendation unconvincing for that reason, among others (similar to ones hinted at by other respondents).
04 Jun. 2020
MGC better, and MGK out of the park.
Thank you very much. Ive stared at that ETF in Vanguards list for many years now wondering what the heck it was vs S&P.
give me the QQQ
Kyle Fishman profile picture
QQQ no doubt offers exposure to innovative tech companies -- but it has much more concentration and less diversification. Like one fifth of it is TWO companies (Apple and Microsoft).
VGT is no slouch either - it's also an impressive Technology ETF --- that devotes one third of its weight to Apple and Microsoft. That's crazy.

I'm a believer in Large Cap Tech. (really, I am).
and I'm also a believer in cap-weighted indexes.
I just don't think that many eggs should be in one basket.

VV gives you the benefit of more diversification. (and even then, Apple and Microsoft still make up like 10% of it).

Plus VV offers a lower fee 0.04% versus QQQ charging 0.20%.
Too much risk with companies that are not profitable.
Good data and commentary,thanks.
William Darusmont profile picture
I'll take a pass...would by MGC over this...Harley number one holding? Seriously?
William Darusmont profile picture
Mea culpa...I was looking at SPY...still I prefer MGC given the weightings.
William Darusmont profile picture
I just compared and returns are very close except MGC also a Vanguard ETF outperforms in every time period:
1,3,5 yrs:
VV 14.5%; 28.6%; 49%
MGC 16.7%; 31.1%; 52.9%

It's a u-pick-'em
Kyle Fishman profile picture
MGC is also a great option for long-term investors, with 70% of the addressable market capitalization.

MGC has a lot of pros, however there are some cons:
It does come with less diversification (263 holdings).
and a slightly higher expense ratio, (although still pretty cheap)...
MGC doesn't have that much in the way of Assets Under Management; so it's not that big or established...

and technically, since MGC's inception in December 2007,
VV outperformed MGC 177.74% to 176.75%. (although they both beat SPY at 171.11%).
(source: dividendchannel drip calculator)
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