Approximate Vanguard Total Stock Market Index with S&P 500 and other fund(s)?

[Dude]

Geez, I'm having a hard time figuring this out!

I have what seems to be a good S&P 500 index fund in my Fidelity 401(k) plan, it's called the "Daily S&P 500 Equity Index Fund" and is administered by Northern Trust Global Investments. It has a stated expense ratio of 0.05%.

I'm wanting to mate this up with a fund or funds at Vanguard in my IRA in order to replicate the Vanguard Total Stock Market Index (VTSMX) fund.

Morningstar's Instant X-Ray says VTSMX is 73% Large-cap, 19% Mid-cap, and 9% Small-cap.

Vanguard's Portfolio Analysis tool says that VTSMX is 64% Large-cap, 27% Mid-cap, and 9% Small-cap.

So my first question is who do I believe about the allocation of VTSMX, Morningstar or Vanguard?

With that answered, is it possible to mate up a S&P 500 index fund with Vangaurd Extended Market Index Fund (VEXMX) to do what I want (closely approximate VTSMX), if so in what percentages to each?

Or, do I have to go with a S&P 500 index, a mid-cap blend index, and a small-cap blend index, if so in what percentages to each?

Anybody been down this path and can help me out? Thanks.

- Dude

 

[wabmester]

VEXMX was designed to do exactly what you want. In fact, it follows the S&P Completion Index, what was designed by S&P to capture the total market when combined with the S&P 500.

If you want to keep the same cap weighting as VTSMX, then buy 1 dollar of VEXMX for every 3 dollars of S&P500.

 

[cute fuzzy bunny]

Did anyone else become more focused on the disparity between the two "x-ray" tools?

Perhaps its foolhardy, but I'd imagine that vanguards analysis tool would break down a vanguard fund better than a morningstar tool.

Either way, one of them is giving fairly inaccurate information. Which is problematic because it seems to me that a lot of folks use one or the other to set their portfolio balance...

 

[Dude]

VEXMX was designed to do exactly what you want. In fact, it follows the S&P Completion Index, what was designed by S&P to capture the total market when combined with the S&P 500.

If you want to keep the same cap weighting as VTSMX, then buy 1 dollar of VEXMX for every 3 dollars of S&P500.

Thanks wab, this is essentially what Morningstar x-ray says (79% VFINX + 21% VEXMX = VTSMX). It bothers me that Vanguard's Portfolio Analysis tool tells me something much different, though, it tells me that 79% VFINX + 21% VEXMX would give me 79.7% large-cap, 11.3% mid-cap, and 9.0% small-cap. These numbers are much different than the numbers it gives me for 100% VTSMX (64/27/9, which is the same as the "U.S. Stock Market" column that they also display) that I stated above.....maybe it's just a quirk in their tool.....I'll call and find out today. Thanks.

 

[cute fuzzy bunny]

Re: Approximate Vanguard Total Stock Market Index with S&P 500 and other fund(s)

Okay, some tidbits to explain the differential.

Morningstar considers a company over 8.5B to be 'large cap', while vanguard sets their cut-off to 12B.

Frankly, it never occurred to me that there would be such a disparity in opinion on such fundamental terms...but i'm not surprised.

A large number of sites I looked at set the cut off at 5B.

Pretty interesting. I guess you need to really dig into some fundamentals and understand the mechanics before trusting a tool...and these numbers must change periodically as inflation and economic factors apply their influences. Then you have to pay attention to when, how often and by how much the definitions are adjusted by each player.

That having been said, Vanguard says the total stock market (by their def) is 70% large cap (by their def) and 30% mid and small cap (by their def).

The delta between their stated 70% and the tools 64% may be due to recent years run-ups in mid and small caps while large caps have languished (relatively speaking)...seems there may be a rebalance due...

Which leaves me wondering what happens to the prices of each 'bucket' as indexes have to make major shifts from one bucket to the other at rebalancing time...

 

[Dude]

Re: Approximate Vanguard Total Stock Market Index with S&P 500 and other fund(s)

That having been said, Vanguard says the total stock market (by their def) is 70% large cap (by their def) and 30% mid and small cap (by their def).

The delta between their stated 70%.....

Where are you seeing this stated? Thanks.

 

[Rich_by_the_Bay]

Re: Approximate Vanguard Total Stock Market Index with S&P 500 and other fund(s)

Geez, I'm having a hard time figuring this out!

I ran into similar confusion (see recent thread on "Allocation.. OUTING") and it initially led me astray. For your purposes, I agree that the Vgd Extended Market is the way to go. I was using it to complement VTSMX rather than S&P, and in that case it gave me too much mid-, too much value, etc. And if defining market cap is inconsistent, then value v. growth is even more so; not to mention what is meant by "blend."

Anyhow, I now find that VTSMX and NAESX (small blend index) gives me a nice mix on my domestic equity piece, something like 2:1 gives you close to 50:25:25 large, mid, small blends which is about right for me (today at least). Can't quite be sure how it tilts value v growth (I want about 50:50), but both are listed as "blends."

 

[d]

for what it's worth ... based on ytd and 1yr returns, it seems the 500 index comprises 80.7%-82.4% of the total stck index.

 

[LOL!]

A side note to this discussion. Years ago, I owned VEXMX in the year that it paid out 10% of assets as a distribution. So index funds are not always tax-efficient.

I think it is written that VTSMX is more tax efficient than VFINX + VEXMX. This may be partly because when a company moves from/into the S&P500 it affects the latter pair, but not VTSMX.

But since this particular discussion is about an IRA holding, tax efficiency is moot.

 

[cute fuzzy bunny]

Where are you seeing this stated? Thanks.

Damned if I can find it now and the baby just woke up, so i'll have to look again later. It was on vanguards web site and I stumbled on it while looking around for their definitions of 'large cap'...the rough statement was something like "For example, vanguards total stock market index is composed of about 70% large cap and 30% mid and small capitalization stocks".

 

[Dude]

Well, I called Vanguard.....they told me that to get closest to VTSMX I would have to combine my S&P 500 index fund with their mid-cap blend and small-cap blend index funds. He didn't have a good explanation about why their Portfolio Analysis tool and Morningstar's x-ray tool gave such different results about VTSMX cap weightings.....maybe when I become a Voyager client I'll get better answers, LOL

 

[Rich_by_the_Bay]

Well, I called Vanguard.....they told me that to get closest to VTSMX I would have to combine my S&P 500 index fund with their mid-cap blend and small-cap blend index funds.

I guess that's true if you want more than 25% midcap. That was enough for me so I stuck with small idx (blend) for my balance tweak.

 

[d]

V's total, mid-cap and small-cap index funds are all based on MSCI indexes, while the extended market index is based on an S&P index ... so to get the exact same coverage, you would need to use mid-cap plus small-cap. but i'd bet the difference between doing this and going with extended is minimal, and given the added difficulty of determining the proper %s for three vs two funds, would be further willing to bet that you'd get a better match using the extended market index.

 

[Dude]

V's total, mid-cap and small-cap index funds are all based on MSCI indexes, while the extended market index is based on an S&P index ... so to get the exact same coverage, you would need to use mid-cap plus small-cap.

Ah, that explains it, thanks!

 

[Dude]

but i'd bet the difference between doing this and going with extended is minimal, and given the added difficulty of determining the proper %s for three vs two funds, would be further willing to bet that you'd get a better match using the extended market index.

Ya know, I'd bet you're right, I should probably stop obsessing about a perfect match and keep it easy and use Extended Market. I like easy Thanks!

 

[Dude]

Vanguard's Portfolio Analysis tool says that VTSMX is 64% Large-cap, 27% Mid-cap, and 9% Small-cap.

I think I figured out where Vanguard is getting these numbers. Look at this page:

https://flagship.vanguard.com/VGApp/hnw/FundsWorldMarket

The first pie chart states that US Market is 77.8% S&P 500 and 22.2% Wilshire 4500. If you apply the percentages for the S&P 500 and Wilshire 4500 rows in the table at the bottom of the page, lumping large cap and medium/large cap columns into "large", medium and medium/small columns into "medium", and small column for "small", you'll come up with 63.21% large, 27.08% medium, and 9.71% small, which is approximately equal to the 64/27/9 that the Portfolio Analysis tool spits out.

So this pie chart reaffirms what several of you have said.....put 78% in my 401(k) S&P 500 index fund and 22% in my IRA in Vanguard Extended Market Index fund to replicate the total US stock market. Cheers!

 

[d]

at the risk of prolonging this topic, a bit more may be warranted.

V’s large-cap index is based on MSCI 300 + 450 (i.e., includes mid-cap)
V’s mid-cap index is based on MSCI 450
V’s small-cap index is bsed on MSCI 1750
V’s total-market index is based on MSCI 2500 (300+450+1750) plus micro-cap.

V’s extended market index is based on the S&P completion index (approx 4000 companies)

note that S&P 500 would include some (200) of the MSCI mid-caps.

so, as previously concluded, V's extended market would be the appropriate complement to the 500 index. mixing S&P and MSCI indexes could result in either unitended duplication or exclusion.

 

[Dude]

Thanks, that's good info!