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Real allocation of total stock index
Old 08-20-2006, 10:07 AM   #1
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Real allocation of total stock index

I'm having trouble sorting out just how a fund like Vanguard Total Stock Market index is really allocated. I understand that it is skewed by its objectives toward large cap growth, but just how would it break down in terms of Value, Growth, Small and Large?

The questions behind my question are a) whether I really need to slice into those 4 categories to get decent diversification, or is the Total Stock Index reasonable proxy for that? If it's closer to the S&P 500, I'll slice and dice; and b) if not, is there a fund that specifically does that specific task for me -- i.e. maintains a specific balance among these categories. Trying to simplify my plans.
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Re: Real allocation of total stock index
Old 08-20-2006, 11:25 AM   #2
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Re: Real allocation of total stock index

Per Vanguard's website, the VTI benchmark was the Wilshire 5000 index through Apr 22, 05 and is now the MSCI US Broad Market Index since that time. In that case, there is no skew to Value, or Growth.

Quote from Vanguard:
Quote:
The fund typically holds the largest 1,200–1,300 stocks in its target index (covering nearly 95% of the index’s total market capitalization) and a representative sample of the remaining stocks. The fund holds a range of securities that, in the aggregate, approximates the full index in terms of key characteristics. These key characteristics include industry weightings and market capitalization, as well as certain financial measures, such as price/earnings ratio and dividend yield.
I've been told that you would need to add VXF (Extended Market ETF) to get the whole picture (small and mid-caps in everything but the S&P500). Again no skew to Value or Growth, but it covers the small caps VTI doesn't.

Quote from Vanguard:
Quote:
designed to track the performance of the Standard & Poor’s Completion Index, a broadly diversified index of stocks of small and medium-sized U.S. companies. The Standard & Poor’s Completion Index contains all of the U.S. common stocks regularly traded on the New York and American Stock Exchanges and the Nasdaq over-the-counter market, except those stocks included in the Standard & Poor’s 500 Index. The fund invests all, or substantially all, of its assets in stocks of its target index, with nearly 80% of its assets invested in the 1,200 largest stocks in its target index (covering nearly 80% of the index’s total market capitalization), and the rest of its assets in a representative sample of the remaining stocks. The fund holds a broadly diversified collection of securities that, in the aggregate, approximates the full index in terms of key characteristics. These key characteristics include industry weightings and market capitalization, as well as certain financial measures, such as price/earnings ratio and dividend yield.

IMHO, you would want both to capture the entire market.
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Re: Real allocation of total stock index
Old 08-20-2006, 11:29 AM   #3
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Re: Real allocation of total stock index

Quote:
Originally Posted by Rich_in_Tampa
I'm having trouble sorting out just how a fund like Vanguard Total Stock Market index is really allocated. I understand that it is skewed by its objectives toward large cap growth, but just how would it break down in terms of Value, Growth, Small and Large?
Several years ago it was noted that the collective returns of the three funds S&P500, S&P400, & S&P600 outperformed the TSM represented by the S&P1500.

I don't know if that's consistently been the case or if it was just a short-term phenomenon.

I've also read that the total stock market is at least 70% large cap, but that depends on your definition of the "large" category.
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Re: Real allocation of total stock index
Old 08-20-2006, 05:28 PM   #4
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Re: Real allocation of total stock index

Last time I checked (about a year ago) the allocation of VTSMX by market cap was as follows.

Large (>5B) 65%
Mid (1B-5B) 25%
Small (<1B) 10%
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