Exchange traded fund investors can look to the iShares Core S&P Total US Stock Market ETF (NYSEArca: ITOT) as a cheap way to gain access to the broad U.S. equities market.
“A total market index fund may be a better option for investors building a complete allocation to U.S. equities than using separate size segment funds,” according to Morningstar equity analyst Michael Rawson. “Because a broad fund holds both large- and small-cap stocks, it is not forced to buy or sell as stocks migrate into a different market-cap range. This promotes low turnover and tax efficiency.”
ITOT recently swapped to the S&P Total Stock Market Index from the S&P 1500 Index. The S&P Total Market Index includes greater small- and micro-cap exposure and will cover more than double the component holdings of the fund’s previous S&P Composite 1500 benchmark. Consequently, due to its broader market exposure, the new benchmark may be slightly less top heavy. Additionally, the benchmark screens new constituents for financial viability and profitability, which may provide a slight quality tilt.
Specifically, the ETF includes a 41.7% position in mega-caps, along with 30.4% large-caps, 18.9% mid-caps, 6.4% small-caps and 2.6% micro-caps.
Sector weights include information technology 19.8%, financials 17.6%, health care 14.9%, consumer discretionary 13.5%, industrials 10.5%, consumer staples 9.2%, energy 5.7%, utilities 3.4%, materials 2.9% and telecom 2.4%.
While ITOT’s underlying benchmark may include smaller companies, the total market index is highly correlated to the S&P 500 during the decade ended December 2015. The S&P Total Market Index rose 7.35% on an annualized basis, compared to the S&P 500’s 7.31% return. However, the S&P Total Market Index showed a slightly greater volatility or standard deviation of 15.6%, compared to the S&P 500’s standard deviation of 15.1% over the past decade.