According to FactSet, one ETF has raised more money than any other so far in 2023, with massive $11.3 billion in inflows as of June 6. But it's not a hot new AI fund, or an ETF that capitalizes on other hot tech trends, although it does give you some exposure to them. Instead, it's arguably one of the dullest standard ETFs out there, but that doesn't mean it can't help you grow your portfolio. It is that Vanguard S&P 500 ETF (NYSEARCA:VOO). Whether you're just starting out or are a seasoned trader who's spent years investing, this unassuming but substantial ETF can serve as a solid addition to your portfolio. Here's why.
Harness the power of the entire S&P 500 in your portfolio
The Vanguard S&P 500 ETF has over $300 billion in assets under management (AUM), making it the third largest ETF in the market today. While there are many complex investment strategies and products that claim to give investors an edge in the market, VOO keeps it simple. He invests in the S&P 500, the index made up of about 500 of the 500 largest US stocks and arguably the most important and influential index in the investing world.
The S&P 500 covers all sectors of the US economy. So instead of having to bet on individual sectors, an ETF like VOO gives you exposure to all sectors — from tech leaders like Apple and Microsoft to old-economy industrial giants like Caterpillar and Deere and everything in between.
What's great about VOO is that it allows investors to harness the power and innovation of a large chunk of the U.S. economy in one investment vehicle without having to commit to favorite sectors or stocks. An investment in VOO is essentially a bet that around 500 of the top publicly traded companies in the United States will continue to innovate and generate profits over time, which has proven to be a profitable endeavor in the past.
Below is an overview of VOO's top 10 holdings, created with TipRanks' holdings tool.
Because the fund tracks the S&P 500 index itself, it's extremely diversified at 504 stocks, and its top 10 holdings account for just 27.8% of assets. As you can see, top stock Apple accounts for a 7.2% stake in the fund, followed by Microsoft with a 6.6% weight, with Amazon, Nvidia and Alphabet (Class A) rounding out the top five holdings. However, it's not just technology stocks, with Warren Buffett's Berkshire Hathaway and energy giant ExxonMobil following closely behind.
As you can see in the table, VOO's top holdings have a pretty solid collection of smart scores. In fact, four of its top 10 holdings, Apple, Nvidia, Alphabet, and UnitedHealth Group, have “Perfect 10” smart scores. The Smart Score is a proprietary quantitative stock ranking system developed by TipRanks. It gives stocks a rating from 1 to 10 based on eight key market factors. A score of 8 or higher is an outperform rating, and VOO itself has a strong ETF Smart Score of 8 out of 10.
Is VOO stock a buy according to analysts?
So the quantitative factors are positive on VOO, but what do Wall Street analysts think? VOO receives a consensus rating of Moderate Buy on TipRanks based on analyst ratings and VOO's stock average price of $445.50 implies an upside potential of 11.9%. Of the 6,212 analyst ratings for the name, 59.13% are buy, 35.33% hold, and just 5.54% sell.
In addition to this deep diversification and broad footprint, another attractive feature of VOO is its low expense ratio. It's hard to top VOO's tiny expense ratio of just 0.03%. An investor who puts $10,000 into VOO would only pay $3 in fees for the first year. This type of investor-friendly cost structure helps investors defend the principal of their portfolios over time without paying excessive fees. For example, assuming that fee stays constant and the fund returns 5% per year over the next 10 years, an investor will only pay $39 in fees over the decade. Compare that to the multitude of ETFs on the market with expense ratios of 0.75%, where investors pay $75 in fees for a $10,000 investment in the first year, and you really see the value proposition of an ETF like VOO.
Solid long-term performance
Given this diversification and investor-friendly expense ratio, it's easy to see why this huge ETF is the most popular ETF in terms of inflows so far this year. However, there is another factor that leads to its popularity – its long-term track record. VOO has a long history of generating double-digit total annual returns for its investors. No matter what time horizon you have in mind, VOO has delivered. At the end of May, VOO had an annualized total return of 12.8% over three years. Over a five-year time horizon, the massive ETF has produced a total return of 11% annually. Additionally, VOO has generated an annualized return of 11.9% over the past 10 years. VOO has been around since 2010 and since its inception earlier this year, the company has delivered an excellent annualized return of 13.3%.
It can pay off to keep things simple
There's no harm in keeping it simple. While there are many exotic investment strategies out there, few beat an ETF like VOO over the long term. While this S&P 500 ETF isn't the type of investment that's going to give you a multi-bag return a year from now, the reality is that few investments do. The good news, however, is that investing in a broad-based ETF like this and being able to grow those gains over the years is a proven way to build long-term wealth. Investors can average dollar costs over time when they have excess cash and/or when the S&P 500 falls, while also reinvesting dividends to augment those results even further.
VOO's strong track record, investor-friendly expense ratio, and portfolio of roughly 500 of the top U.S. stocks have long made the company a winner, and it likely will remain a winner for the foreseeable future.