VUG vs VTI – Which one to go long term with?

Investing in index ETF is one of the easiest way to gain diversification with low fees. And there are so many different types of index ETFs. In this article, we will be doing a comparison between these 2 popular ETFs: VUG vs VTI.

The main difference between VUG vs VTI is, VUG consist of only large cap companies that falls under the Growth category in the US market. VTI, on the other hand, is consist of a companies of all different cap ranging from micro to mega cap in the US. This include companies of different characteristics including growth companies.

Read on for a more comprehensive coverage.

An Overview of VUG vs VTI

Vanguard Growth ETF
(VUG)
Vanguard Total Stock Market ETF
(VTI)
Benchmark IndexCRSP US Large Cap Growth Index CRSP US Total Market Index
Expense Ratio0.04%0.03%
Number of Stocks2573,634
% of 10 largest holdings45.05%22.05%
Dividend Yield0.63%1.46%
As of 31/12/2020
Source: advisors.vanguard.com

VUG tracks the CRSP US Large Cap Growth Index. The CRSP US Large Cap Growth Index classifies growth companies using the future long-term and short-term growth in EPS (Earnings per shares), 3-year historical growth in EPS, 3-year historical growth in sales per share, current investment-to-assets ratio, and return on assets.

VTI tracks the CRSP US Total Market Index. This index comprises of US companies across mega, large, small and micro caps.

This is why we see a stark difference in the number of stocks that these funds hold.

Vanguard funds are known for their low cost ETF. Both these ETFs rock at their nearly identical expense ratio with the Vanguard Growth ETF at 0.04% and Vanguard Total Stock Market ETF at 0.03%. This means that for every $10,000 you invest, you are only paying $4 and $3 respectively each year in management expenses.

The dividend yield for the Total Stock Market ETF (1.62%) is higher than that of Growth ETF (0.67%). This is expected because VUG consist of Growth companies. Growth companies usually retain their a large portion of their earnings for company growth and expansion, instead of distributing it to shareholder as dividend.

FUND COMPOSITE VUG vs VTI

Market Capitalization

Despite having a larger number of stocks Mid and Small Cap companies only constitute for 12.1% of the ETF.

Vanguard Growth ETF
(VUG)
Vanguard Total Stock Market ETF
(VTI)
Large Cap (>$10bn)99.4%87.5%
Mid cap ($2-10bn)0.3%9.5%
Small cap (<$2bn)0.0%2.6%
Source from etfrc.com

Top 10 Holdings

Vanguard Growth ETF
(VUG)
Vanguard Total Stock Market ETF
(VTI)
Apple Inc. (AAPL)
11.03%
Apple Inc. (AAPL)
5.25%
Microsoft Corp. (MSFT)
9.13%
Microsoft Corp. (MSFT)
4.35%
Amazon.com Inc. (AMZN)
7.55%
Amazon.com Inc. (AMZN)
3.59%
Facebook Inc. (FB)
3.57%
Facebook Inc. (FB)
1.70%
Tesla Inc. (TSLA)
2.91%
Tesla Inc. (TSLA)
1.38%
Alphabet Inc. (GOOGL)
2.86%
Alphabet Inc. (GOOGL)
1.37%
Alphabet Inc. (GOOG)
2.67%
Alphabet Inc. (GOOG)
1.27%
Visa Inc. (V)
1.94%
Johnson & Johnson (JNJ)
1.07%
Mastercard Inc. (MA)
1.72%
Berkshire Hathaway Inc. (BRK.B)
1.07%
NVIDIA Corp. (NVDA)
1.67%
JPMorgan Chase & Co. (JPM)
1.00%
45.05% of total net asset22.05% of total net assets
As of 31/12/2020
Source: advisors.vanguard.com

The top 10 in both companies are rather similar. However, top 10 companies in VUG makes up almost half of the total asset, whereas in VTI, top 10 only constitutes for 22% of the total.

VUG vs VTI – Performance

Using the Portfolio Visualizer to back test these 2 ETFs, we can then compare the portfolio growth between Jan 2005 – Nov 2020. The time period was constrained by the available data for Vanguard Growth ETF.

VUG vs VTI performance

From the graph above, we can see that if we were to invest $10,000 at the start of 2005, we would have ended up with $57, 204 for VUG and $42,907 for VTI. This is 33% more in terms of growth for VUG.

Has this always been the case where VUG would outperform VTI? I thought it would be interesting to take a closer look at the period leading to the 2009 crash.

VUG vs VTI 2005-2008

From the graph, we can see that the VTI has outperformed VUG during this period.

I think Growth stock started widening the gap between 2019-2020. The question here is can they continue?

Annual Returns

VUG vs VTI Annual Returns

If we look at the above chart for the annual returns between 2005-2020, there are only 2 years where the both ETFs has negative return.

In 2008, VUG delivers -38.02% vs VTI’s -36.98%, 2018’s -3.31% vs -5.21%. Initially I thought the difference would be a wider, but it seems like during downturns, they perform rather similar.

And also, we can see that VTI delivers better returns in only 5 out of the 14 positive return years in 2006, 2010, 2013 and 2016. VUG performs better in 9 out of the 14 positive return years.

Which one to go long term with?

Based on past performance, Vanguard Growth ETF seems to be the one to go with. You get a 33% more in terms of portfolio growth. And during downturn, both these ETFs performs similar.

If you want exposure to mid or small caps, then you can go with Vanguard Total Stock Market. Although, they only constitute 12.1%. Alternatively, you can buy Vanguard Mid-Cap ETF (VO) or Vanguard Small-Cap ETF (VB) if you want more than 12% of exposure to mid and small cap companies

But always remember that Past Performance is No Guarantee of Future Results.