VV: Vanguard Large-Cap ETF

VV: Vanguard Large-Cap ETF 

Vanguard Large-Cap ETF (VV) was established in January 2004 and has tracked a target index comprised of large-cap growth and large-cap value stocks to provide investors a 10-year annualized return of 8.18%. Currently, VV uses the CRSP U.S. Large Cap Index as its target index for performance, which lists a diversified group of U.S. common stock for companies that fall within the top 85% of market capitalization in the country.

Large-cap stocks are a well-known staple in traditional asset allocation models. While exchange-traded funds (ETFs) with 100% equity holdings bear more risk than a fund with diversification across different asset classes (money markets or bonds), large-cap stocks are less volatile than small- or mid-cap common stocks. The largest companies operating within the United States are known to pay out steady dividends to shareholders and can often weather downturns in the market with greater ease compared to smaller companies. The Vanguard Large-Cap ETF is comprised of 649 large-cap companies, including tech giants such as Apple, Exxon Mobil Corporation and Johnson & Johnson.

Utilizing a standard indexing management approach, VV invests nearly all fund assets into the securities listed on the target index in a passive management style. Currently, the CSRP U.S. Large Cap Index is weighted most heavily in the financial sector (17.9%), followed by technology companies (16.9%), health care organizations (14.2%) and consumer services (13.9%). However, the index also includes industrial companies, oil and gas, consumer goods and basic materials.

Characteristics

The Vanguard Large-Cap ETF is categorized as a full-replication, passively managed open-ended investment company, managed by tenured professionals within the Vanguard Group, Inc. VV seeks to mimic the performance of its target index by replicating holdings in similar proportions. This strategy keeps the fund predictable as well as cost efficient for investors seeking exposure to the large-cap domestic market.

As Vanguard is widely known for investor-friendly expense ratios due to an overarching simplistic investment style, it is no surprise that VV has an exceptionally low expense ratio of 0.09%. As with other ETFs offered through the Vanguard Group, investors can buy or sell VV on the secondary market, which may or may not include broker fees and commissions.

Suitability and Recommendations

Similar to other all-equity pooled investment options, VV comes with a degree of risk. Because the ETF focuses its holdings on the common stock of large-cap companies within the United States only, investors gain exposure to a relatively concentrated group of securities. However, VV diversifies fund assets across both large-cap growth and large-cap value stocks, creating a blended ETF in the large-cap space. The combination of both growth and value shares reduces some risk for investors as each provides a slightly different path toward capital appreciation. Overall, VV is best suited for investors with longer time horizons for their investments.

When compared to similar large-cap ETFs, VV is relatively low on the scale of risk. This can be attributed to the fund managers' passive approach to investing, as well as the fund's impressively low management fees.

For those who follow modern portfolio theory (MPT), certain risk-related statistics can be analyzed to further determine suitability of an investment. Over the last three years, VV has had an alpha of 0.18 against its target index, an R-squared value of 99.75 and a beta of 1. Additionally, VV has had a standard deviation of 8.53 and a Sharpe ratio of 1.93.

While it is clear that VV carries with it some risk for investors, it may be appropriate for individuals seeking long-term capital appreciation from an investment. VV has a strong history of performance in line with its target index, and it allows investors an opportunity to gain exposure to a blended large-cap portfolio with minimal cost.