爱魔域

Best-in-class option for large-cap investors.

Brendan McCann

Associate Analyst

Summary

Vanguard S&P 500 funds offer well-diversified, market-cap-weighted portfolios of 500 of the largest US stocks. The funds accurately represent the large-cap opportunity set while charging rock-bottom fees, a recipe for success over the long run.

The funds track the flagship S&P 500, which selects 500 of the largest US stocks—roughly 80% of the US equity market—and weights them by the market cap. An index committee has discretion over selecting companies that meet certain liquidity and profitability standards. While a committee-based approach may lack clarity, it adds flexibility to reduce unnecessary changes during reconstitution, taming transaction costs compared with more rigid rules-based indexes.

The end portfolio is well-diversified and accurately represents the US large-cap opportunity set. This allows the strategy to capitalize on its low fee and closely track the performance of the large-cap market.

The bedrock of this strategy is market-cap weighting, which harnesses the market’s collective wisdom of the relative value of each holding with the added benefit of low turnover and associated trading costs. It’s a sensible approach because the market tends to do a good job pricing large-cap stocks. Large, highly traded markets tend to reflect new information quickly and are well-suited for indexing.

When a few richly valued companies or sectors power most of the market gains, market-cap weighting may expose the strategy to stock- or sector-level concentration risk. As of year-end 2024, the top 10 holdings made up the largest portion of the index (37%) in several decades, and the 34% allocation to technology stocks was the highest since the dot-com bubble. But this is not a fault in design. The S&P 500 simply reflects the market composition. In the long run, its broad diversification, low turnover, and low fee outweigh these risks.

by Brendan McCann

Rated on Jan 27, 2025 Published on Jan 27, 2025

This strategy accurately captures the large-cap opportunity set and keeps a lid on turnover by leveraging the market’s collective wisdom to size its positions.

Brendan McCann

Associate Analyst

Process High

It earns a High Process Pillar rating.

The strategy tracks the S&P 500, which selects 500 of the largest US companies that pass its liquidity and profitability screens. The profitability screen requires that the sum of a company’s GAAP earnings over the past four quarters be positive as well as the most recent quarter. The screen imparts a slight quality tilt to the portfolio but doesn’t distinguish it from similar benchmarks since large-cap stocks tend to be profitable. There have been instances where the profitability screen prevented otherwise qualified companies from index inclusion. Most notably, Tesla was added to the index only in December 2020, despite passing the liquidity and market-cap thresholds in January 2013. Once the index committee selects stocks, it weights them by market cap.

Market-cap weighting harnesses the market’s collective wisdom on a stock’s relative value and helps reduce turnover and associated trading costs. The index committee further curbs turnover by implementing changes as it sees fit rather than adhering to a strict reconstitution schedule.

The strategy approximates the contours of the large-cap market. Its sector composition is in line with its average peer in the US large-blend Morningstar Category, and no sector deviates by more than 4 percentage points as of year-end 2024. The fund’s value-growth and market-cap orientation both mirror the US category average, too.

Market-cap weighting consistently guides the index into the largest and most established names. As of year-end 2024, 94% of the strategy’s assets were companies with wide or narrow Morningstar Economic Moat Ratings, showcasing the portfolio’s durability.

This strategy is well-diversified. The average large-blend fund’s top 10 holdings represent approximately 50% of their portfolios as of year-end 2024; this strategy’s top 10 holdings represented 37% of the portfolio. While that’s lower than the US category average, it’s an increase from previous years. For example, in 2015, the top 10 holdings hovered around only 17% of the total holdings. Stocks such as Microsoft and Apple were some of the largest holdings then. They still ranked in the top 10 as of December 2024, but both their weightings have more than doubled since 2015.

by Brendan McCann

Rated on Jan 27, 2025 Published on Jan 27, 2025

Vanguard's equity index group earns an Above Average People Pillar rating for its well-supported and stable management team adept at leveraging Vanguard's comprehensive resources.

Brendan McCann

Associate Analyst

People Above Average

Its portfolio managers benefit from the firm's global infrastructure and advanced portfolio management technology, which facilitates cost-efficient trading around the globe. The infrequent turnover of managers, coupled with Vanguard's practice of rotating them across various funds, enhances their expertise and understanding of different market segments.

The fund's managers directly handle trading, providing them with deeper insights into the portfolio's operations than a stand-alone trader might have. They are backed by a global team of dedicated personnel and employ sophisticated, scalable technology to minimize their workload and enhance tracking accuracy. Vanguard's independent risk-management team plays a crucial role in ensuring its funds adhere to predetermined tracking tolerances. It collaborates closely with the managers to oversee trades and address potential issues proactively. Vanguard compensates managers based on tracking error and excess return metrics to foster a culture of accountability and ensure that the management team's interests are closely tied to investors'.

by Brendan McCann

Rated on Jan 27, 2025 Published on Jan 27, 2025

Vanguard maintains its High Parent Pillar rating as it continues to grow under new leadership.

Daniel Sotiroff

Senior Analyst

Parent High

CEO Salim Ramji has had a busy first year captaining Vanguard’s crew, and the ship remains pointed in the right direction. The firm made its largest round of fee cuts in early 2025, which came at an estimated cost of USD 350 million. It established a separate division dedicated to its advice and wealth management efforts, a sign that it wants to seriously compete within those lines of business. Asset growth has continued to be a huge success. Only BlackRock’s inflows rival the money Vanguard is taking in. Likewise, the number of clients it serves has more than doubled since 2015.

Despite that success, an ever-growing number of clients has presented a challenge: Vanguard can’t grow its services fast enough to keep up with demand. In some instances, it has had to curb certain services and capabilities or raise fees on others to cope, causing some loyal clients to criticize what they perceive as deteriorating services.

Vanguard has ambitions to bring its disruptive legacy to the bond market. It created roughly a dozen low-cost bond exchange-traded funds for US investors and several others abroad over the 12 months through June 2025. All have low fees in their respective categories, and the actively managed strategies align with Vanguard’s philosophy. They are relatively easy to understand and are conservatively managed.

Vanguard has another opportunity to prove that clients are still its priority. On the surface, its endeavor into the high-fee deal-making world of private assets alongside Wellington and Blackstone looks like a cultural mismatch. So far, the collaboration hasn’t produced anything that’s concerning.

by Daniel Sotiroff

Rated on Jul 28, 2025 Published on Jul 28, 2025

This strategy accurately represents the US large-cap opportunity set, allowing the funds to leverage their cost advantage and drive sound relative performance.

Brendan McCann

Associate Analyst

Performance

The fund’s low fee should help it beat its pricier US large-cap peers over the long run.

The strategy’s performance closely follows the ups and downs of the US stock market, since it is always fully invested. All else equal, this strategy should outperform its peers that hold cash during market rallies. Likewise, the strategy should lag similar peers when the market falls because it lacks a cash buffer.

Because of the strategy’s bias toward the largest and the most established companies, it misses out when small-cap stocks outperform large-cap stocks as they did in the fourth quarter of 2020. Likewise, when the S&P 500 becomes concentrated in a few large companies, the strategy can become top-heavy. This exposes the funds to US market risks should another dot-com-type bubble burst, during which the S&P 500 fell over 40% in the early 2000s.

by Brendan McCann

Published on Jan 27, 2025

It’s critical to evaluate expenses, as they come directly out of returns.

Brendan McCann

Associate Analyst

Price

Based on our assessment of the fund’s People, Process, and Parent Pillars in the context of these expenses, we think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Medalist Rating of Gold.

by Brendan McCann

Published on Jan 27, 2025