VTI, S&P500 still so top heavy

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
jbriar
Posts: 169
Joined: Wed Oct 19, 2022 7:57 pm

Re: VTI, S&P500 still so top heavy

Post by jbriar »

Taylor Larimore wrote: Wed Nov 23, 2022 11:22 am Bogleheads:

When I am undecided (which is often) I simply do what experts recommend:

What Experts Say About Total Market Index Funds

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The winning formula for success in investing is owning the entire stock market through an index fund, and then doing nothing. Just stay the course."
I hope there are no Bogleheads in or near retirement that have all their assets in just a US stock market index fund.
Topic Author
the_wiki
Posts: 728
Joined: Thu Jul 28, 2022 11:14 am

Re: VTI, S&P500 still so top heavy

Post by the_wiki »

Coming back to this the next day, I'm not sure if my primary complaint about "top heavy" is the largest holdings, or the smallest ones.

If you look at VTSAX (VTI) latest holdings download from 10/31, APPL is 6.13%. That is the combined weight of the bottom 3067 holdings. MSFT is the weight of the bottom 2886 holdings.

The bottom 2000 holdings in VTI could all double in price overnight at once and it would still not even move the fund by a full 1%.

No wonder S&p500 and VTI track about the same.
User avatar
Lawrence of Suburbia
Posts: 346
Joined: Mon Aug 08, 2022 12:04 pm

Re: VTI, S&P500 still so top heavy

Post by Lawrence of Suburbia »

I'm wondering if there's an index fund out there that tracks the top say 500 to 1,000 companies, but by equal weight; that should ease the concern. To me it doesn't seem an issue -- don't you want full participation in the momentum of successful enterprises?
I know that you believe you understand what you think I said; but I am not sure you realise that what you heard is not what I meant.
Hyperchicken
Posts: 1280
Joined: Mon Mar 02, 2020 5:33 pm

Re: VTI, S&P500 still so top heavy

Post by Hyperchicken »

Lawrence of Suburbia wrote: Wed Nov 23, 2022 12:15 pm I'm wondering if there's an index fund out there that tracks the top say 500 to 1,000 companies, but by equal weight; that should ease the concern. To me it doesn't seem an issue -- don't you want full participation in the momentum of successful enterprises?
Yes - it is called "equal weight s&p 500".

https://www.etf.com/channels/sp-500-equ ... index-etfs
jbriar
Posts: 169
Joined: Wed Oct 19, 2022 7:57 pm

Re: VTI, S&P500 still so top heavy

Post by jbriar »

Lawrence of Suburbia wrote: Wed Nov 23, 2022 12:15 pm I'm wondering if there's an index fund out there that tracks the top say 500 to 1,000 companies, but by equal weight; that should ease the concern. To me it doesn't seem an issue -- don't you want full participation in the momentum of successful enterprises?
Momentum is the positive hidden factor in market cap weighting that can be hard to beat when you stray too far away from it within an index. However on a macro level, using momentum between broad index funds to make investment decisions is another story altogether. i.e. when US large cap has momentum than buy it but when another broad index has stronger upward momentum than you would switch. Obviously the last 12 years or so you would be invested in US large cap VTI or SPY and the US tech sector specifically most of the time. I doubt that will be the same story the next 12 years but price momentum will tell us what is going up and to the right.
Escapevelocity
Posts: 1063
Joined: Mon Feb 18, 2019 8:32 am

Re: VTI, S&P500 still so top heavy

Post by Escapevelocity »

Hyperchicken wrote: Wed Nov 23, 2022 12:22 pm
Lawrence of Suburbia wrote: Wed Nov 23, 2022 12:15 pm I'm wondering if there's an index fund out there that tracks the top say 500 to 1,000 companies, but by equal weight; that should ease the concern. To me it doesn't seem an issue -- don't you want full participation in the momentum of successful enterprises?
Yes - it is called "equal weight s&p 500".

https://www.etf.com/channels/sp-500-equ ... index-etfs
That fund is fine, but it's basically a midcap/largcap hybrid fund with a value tilt. If you want a large cap fund look elsewhere.
User avatar
Lawrence of Suburbia
Posts: 346
Joined: Mon Aug 08, 2022 12:04 pm

Re: VTI, S&P500 still so top heavy

Post by Lawrence of Suburbia »

Hyperchicken wrote: Wed Nov 23, 2022 12:22 pm
Lawrence of Suburbia wrote: Wed Nov 23, 2022 12:15 pm I'm wondering if there's an index fund out there that tracks the top say 500 to 1,000 companies, but by equal weight; that should ease the concern. To me it doesn't seem an issue -- don't you want full participation in the momentum of successful enterprises?
Yes - it is called "equal weight s&p 500".

https://www.etf.com/channels/sp-500-equ ... index-etfs
I just compared RSP to VOO ... VOO still outperforms, albeit slightly. Adds up over longer periods though, I'm sure.
I know that you believe you understand what you think I said; but I am not sure you realise that what you heard is not what I meant.
User avatar
Charles Joseph
Posts: 743
Joined: Tue Apr 05, 2022 10:49 pm

Re: VTI, S&P500 still so top heavy

Post by Charles Joseph »

Always is.
"What, me worry?"
Hyperchicken
Posts: 1280
Joined: Mon Mar 02, 2020 5:33 pm

Re: VTI, S&P500 still so top heavy

Post by Hyperchicken »

Lawrence of Suburbia wrote: Wed Nov 23, 2022 12:50 pm
Hyperchicken wrote: Wed Nov 23, 2022 12:22 pm
Lawrence of Suburbia wrote: Wed Nov 23, 2022 12:15 pm I'm wondering if there's an index fund out there that tracks the top say 500 to 1,000 companies, but by equal weight; that should ease the concern. To me it doesn't seem an issue -- don't you want full participation in the momentum of successful enterprises?
Yes - it is called "equal weight s&p 500".

https://www.etf.com/channels/sp-500-equ ... index-etfs
I just compared RSP to VOO ... VOO still outperforms, albeit slightly. Adds up over longer periods though, I'm sure.
Well, that's what you were asking for - equal weight - check, top 500 companies - check. :)

It may or may not "add up over longer periods". It does have higher expense ratio. Did that "ease the concern"?
homebuyer6426
Posts: 1245
Joined: Tue Feb 07, 2017 9:08 am

Re: VTI, S&P500 still so top heavy

Post by homebuyer6426 »

Lawrence of Suburbia wrote: Wed Nov 23, 2022 12:50 pm
Hyperchicken wrote: Wed Nov 23, 2022 12:22 pm
Lawrence of Suburbia wrote: Wed Nov 23, 2022 12:15 pm I'm wondering if there's an index fund out there that tracks the top say 500 to 1,000 companies, but by equal weight; that should ease the concern. To me it doesn't seem an issue -- don't you want full participation in the momentum of successful enterprises?
Yes - it is called "equal weight s&p 500".

https://www.etf.com/channels/sp-500-equ ... index-etfs
I just compared RSP to VOO ... VOO still outperforms, albeit slightly. Adds up over longer periods though, I'm sure.
Portfolio Visualizer

That one starts 2004, RSP outperforms a little. The two seem to equalize at the recessions.
User avatar
Lawrence of Suburbia
Posts: 346
Joined: Mon Aug 08, 2022 12:04 pm

Re: VTI, S&P500 still so top heavy

Post by Lawrence of Suburbia »

Hyperchicken wrote: Wed Nov 23, 2022 12:57 pm
Lawrence of Suburbia wrote: Wed Nov 23, 2022 12:50 pm
Hyperchicken wrote: Wed Nov 23, 2022 12:22 pm
Lawrence of Suburbia wrote: Wed Nov 23, 2022 12:15 pm I'm wondering if there's an index fund out there that tracks the top say 500 to 1,000 companies, but by equal weight; that should ease the concern. To me it doesn't seem an issue -- don't you want full participation in the momentum of successful enterprises?
Yes - it is called "equal weight s&p 500".

https://www.etf.com/channels/sp-500-equ ... index-etfs
I just compared RSP to VOO ... VOO still outperforms, albeit slightly. Adds up over longer periods though, I'm sure.
Well, that's what you were asking for - equal weight - check, top 500 companies - check. :)

It may or may not "add up over longer periods". It does have higher expense ratio. Did that "ease the concern"?
I don't know. It's not an issue for me; might be still for the OP
Last edited by Lawrence of Suburbia on Wed Nov 23, 2022 1:57 pm, edited 1 time in total.
I know that you believe you understand what you think I said; but I am not sure you realise that what you heard is not what I meant.
User avatar
Lawrence of Suburbia
Posts: 346
Joined: Mon Aug 08, 2022 12:04 pm

Re: VTI, S&P500 still so top heavy

Post by Lawrence of Suburbia »

homebuyer6426 wrote: Wed Nov 23, 2022 1:11 pm
Lawrence of Suburbia wrote: Wed Nov 23, 2022 12:50 pm
Hyperchicken wrote: Wed Nov 23, 2022 12:22 pm
Lawrence of Suburbia wrote: Wed Nov 23, 2022 12:15 pm I'm wondering if there's an index fund out there that tracks the top say 500 to 1,000 companies, but by equal weight; that should ease the concern. To me it doesn't seem an issue -- don't you want full participation in the momentum of successful enterprises?
Yes - it is called "equal weight s&p 500".

https://www.etf.com/channels/sp-500-equ ... index-etfs
I just compared RSP to VOO ... VOO still outperforms, albeit slightly. Adds up over longer periods though, I'm sure.
Portfolio Visualizer

That one starts 2004, RSP outperforms a little. The two seem to equalize at the recessions.
Ahh, ok. I just went back to 2012.
I know that you believe you understand what you think I said; but I am not sure you realise that what you heard is not what I meant.
Northern Flicker
Posts: 11923
Joined: Fri Apr 10, 2015 12:29 am

Re: VTI, S&P500 still so top heavy

Post by Northern Flicker »

It's not the same top 10 as it was say 3 years ago.

VTI has over 4000 stocks. The bottom 1000 are so small that most or all of them are not even in the Russell 3000 total market index. They would not have enough liquidity for a fund the size of VTI to hold them at a much larger weight, and doing so would push up their price to a distorted level.

The most efficient way to have a size tilt is by holding a small cap fund at whatever weight you prefer, not by trying to implement it at the individual stock granularity. Cap weighting within an individual fund reduces transaction costs.
My postings represent my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
hnd
Posts: 929
Joined: Mon Jun 22, 2020 11:43 am

Re: VTI, S&P500 still so top heavy

Post by hnd »

I don't know if this has been brought up or not but the top 10 companies in the sp500 are basically umbrella corporations with probably close to a hundred smaller businesses that touch almost every sector. Amazon, Google, Berkshire. between those 3 along you have probably 50-100 companies/divisions with their own management, vision, and market results.
Northern Flicker
Posts: 11923
Joined: Fri Apr 10, 2015 12:29 am

Re: VTI, S&P500 still so top heavy

Post by Northern Flicker »

Conglomerates are not just a recent phenomenon.
My postings represent my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
secondopinion
Posts: 3196
Joined: Wed Dec 02, 2020 1:18 pm

Re: VTI, S&P500 still so top heavy

Post by secondopinion »

hnd wrote: Wed Nov 23, 2022 2:16 pm I don't know if this has been brought up or not but the top 10 companies in the sp500 are basically umbrella corporations with probably close to a hundred smaller businesses that touch almost every sector. Amazon, Google, Berkshire. between those 3 along you have probably 50-100 companies/divisions with their own management, vision, and market results.
Not exactly. The line of credit can be massive at times when otherwise it would be difficult or impossible to obtain, or the top corporate says a sub-company is over without any questions. It is not the same as if they were their own companies.

Because I do not trust management always, I tilt smaller and it helps dilute the top ten holdings. I also think small companies will be compensated for their risk over time.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
rkhusky
Posts: 14159
Joined: Thu Aug 18, 2011 8:09 pm

Re: VTI, S&P500 still so top heavy

Post by rkhusky »

Lawrence of Suburbia wrote: Wed Nov 23, 2022 1:25 pm
homebuyer6426 wrote: Wed Nov 23, 2022 1:11 pm
Lawrence of Suburbia wrote: Wed Nov 23, 2022 12:50 pm
Hyperchicken wrote: Wed Nov 23, 2022 12:22 pm
Lawrence of Suburbia wrote: Wed Nov 23, 2022 12:15 pm I'm wondering if there's an index fund out there that tracks the top say 500 to 1,000 companies, but by equal weight; that should ease the concern. To me it doesn't seem an issue -- don't you want full participation in the momentum of successful enterprises?
Yes - it is called "equal weight s&p 500".

https://www.etf.com/channels/sp-500-equ ... index-etfs
I just compared RSP to VOO ... VOO still outperforms, albeit slightly. Adds up over longer periods though, I'm sure.
Portfolio Visualizer

That one starts 2004, RSP outperforms a little. The two seem to equalize at the recessions.
Ahh, ok. I just went back to 2012.
Note that it is not really equal weight - that would be too expensive.
Marseille07
Posts: 12267
Joined: Fri Nov 06, 2020 1:41 pm

Re: VTI, S&P500 still so top heavy

Post by Marseille07 »

burritoLover wrote: Wed Nov 23, 2022 10:51 am
Escapevelocity wrote: Wed Nov 23, 2022 10:44 am
burritoLover wrote: Wed Nov 23, 2022 9:19 am Image
this is misleading. In order to fully benefit from the "good" years, you need to be holding the market cap weighted index because you have no way of knowing which specific companies will be building towards the top 10 ahead of time.
This was in response to those that looked at the mammoth megacaps in the current US market and thought those were companies they definitely don't mind being concentrated in.
This is a non-issue, and also happens elsewhere such as Nestle and Toyota Motors who are the largest companies in their respective markets.
US & FM (5% seed) | 5% Cash
hnd
Posts: 929
Joined: Mon Jun 22, 2020 11:43 am

Re: VTI, S&P500 still so top heavy

Post by hnd »

secondopinion wrote: Wed Nov 23, 2022 6:24 pm
hnd wrote: Wed Nov 23, 2022 2:16 pm I don't know if this has been brought up or not but the top 10 companies in the sp500 are basically umbrella corporations with probably close to a hundred smaller businesses that touch almost every sector. Amazon, Google, Berkshire. between those 3 along you have probably 50-100 companies/divisions with their own management, vision, and market results.
Not exactly. The line of credit can be massive at times when otherwise it would be difficult or impossible to obtain, or the top corporate says a sub-company is over without any questions. It is not the same as if they were their own companies.

Because I do not trust management always, I tilt smaller and it helps dilute the top ten holdings. I also think small companies will be compensated for their risk over time.
of course not exactly. but kinda. I'm not talking about risk and return, i'm talking about diversification. The top companies are WELL diversified in their revenues. its not as black and white as people make it out to be. I too tilt small cap because of additional risk i can stomach. its not out of fear of the top holdings.
secondopinion
Posts: 3196
Joined: Wed Dec 02, 2020 1:18 pm

Re: VTI, S&P500 still so top heavy

Post by secondopinion »

hnd wrote: Thu Nov 24, 2022 10:59 am
secondopinion wrote: Wed Nov 23, 2022 6:24 pm
hnd wrote: Wed Nov 23, 2022 2:16 pm I don't know if this has been brought up or not but the top 10 companies in the sp500 are basically umbrella corporations with probably close to a hundred smaller businesses that touch almost every sector. Amazon, Google, Berkshire. between those 3 along you have probably 50-100 companies/divisions with their own management, vision, and market results.
Not exactly. The line of credit can be massive at times when otherwise it would be difficult or impossible to obtain, or the top corporate says a sub-company is over without any questions. It is not the same as if they were their own companies.

Because I do not trust management always, I tilt smaller and it helps dilute the top ten holdings. I also think small companies will be compensated for their risk over time.
of course not exactly. but kinda. I'm not talking about risk and return, i'm talking about diversification. The top companies are WELL diversified in their revenues. its not as black and white as people make it out to be. I too tilt small cap because of additional risk i can stomach. its not out of fear of the top holdings.
Right. That is why I do not do equal weighting of companies either; large companies have better diversification usually, so they can justify more weighting. However given 20 small companies and an equivalent one large company, I rather take the 20 small.

If the tilt is right or wrong, I will get what I paid for.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Topic Author
the_wiki
Posts: 728
Joined: Thu Jul 28, 2022 11:14 am

Re: VTI, S&P500 still so top heavy

Post by the_wiki »

hnd wrote: Wed Nov 23, 2022 2:16 pm I don't know if this has been brought up or not but the top 10 companies in the sp500 are basically umbrella corporations with probably close to a hundred smaller businesses that touch almost every sector. Amazon, Google, Berkshire. between those 3 along you have probably 50-100 companies/divisions with their own management, vision, and market results.
Sure but it is still just a single stock and can drop huge due to bad news from one core division.
Triple digit golfer
Posts: 9815
Joined: Mon May 18, 2009 5:57 pm

Re: VTI, S&P500 still so top heavy

Post by Triple digit golfer »

the_wiki wrote: Thu Nov 24, 2022 3:10 pm
hnd wrote: Wed Nov 23, 2022 2:16 pm I don't know if this has been brought up or not but the top 10 companies in the sp500 are basically umbrella corporations with probably close to a hundred smaller businesses that touch almost every sector. Amazon, Google, Berkshire. between those 3 along you have probably 50-100 companies/divisions with their own management, vision, and market results.
Sure but it is still just a single stock and can drop huge due to bad news from one core division.
And a mutual fund can drop due to bad news from one company.
PoorHomieQuan
Posts: 96
Joined: Thu Aug 25, 2022 8:07 pm

Re: VTI, S&P500 still so top heavy

Post by PoorHomieQuan »

burritoLover wrote: Tue Nov 22, 2022 2:28 pm Good thing the top 5 aren't in similar or related industries. That would be really bad. :twisted:
Two are in XLK, one each XLV, XLY, XLF.
gtrplayer
Posts: 314
Joined: Sat Dec 08, 2018 4:13 pm

Re: VTI, S&P500 still so top heavy

Post by gtrplayer »

When the top stocks fall, they will be replaced by new top stocks. Or they’ll be replaced by a number of other stocks and the top 10 won’t hold as much of the market share. If you own all the stocks, the only concern is when money is taken out of the market, like it was this year. If money is just being moved around the market, there wouldn’t be any impact.

If I sell 5 shares of Apple and use the money to buy shares of Berkshire… does this have an impact on a total market fund?
User avatar
squirrel1963
Posts: 1159
Joined: Wed Jun 21, 2017 10:12 am
Location: Portland OR area

Re: VTI, S&P500 still so top heavy

Post by squirrel1963 »

Marseille07 wrote: Wed Nov 23, 2022 7:13 pm
burritoLover wrote: Wed Nov 23, 2022 10:51 am
Escapevelocity wrote: Wed Nov 23, 2022 10:44 am
burritoLover wrote: Wed Nov 23, 2022 9:19 am Image
this is misleading. In order to fully benefit from the "good" years, you need to be holding the market cap weighted index because you have no way of knowing which specific companies will be building towards the top 10 ahead of time.
This was in response to those that looked at the mammoth megacaps in the current US market and thought those were companies they definitely don't mind being concentrated in.
This is a non-issue, and also happens elsewhere such as Nestle and Toyota Motors who are the largest companies in their respective markets.
Another giant is ASML (Dutch manufacturer of chip making equipment). It's about 8% of Eurostoxx 50 (top 50 stocks of Eurozone). In turn, eurostoxx 50 represents 60% of Eurostoxx total stock market.

I see this pattern in every country and/or geographical area as well across time in the US stock market, so I still do not see why OP thinks "top heavy" is an issue. Rather, it seems a feature of capital markets.
LMP | Liability Matching Portfolio | safe portfolio: TIPS ladder + I-bonds + Treasuries | risky portfolio: US stocks / US REIT / International stocks
Post Reply