ITOT: A Solid Buy For Long-Term, Buy-And-Hold Investors

seekingalpha06-03

Matteo ColomboInvestment Thesis iShares Core S&P Total U.S. Stock Market ETF (NYSEARCA:ITOT) is a buy due to its low cost, broad diversification. While the S&P 500 has outperformed total U.S. market ...

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While the S&P 500 has outperformed total U.S. market ...</p>\n\n<a href=\"https://seekingalpha.com/article/4697108-itot-etf-solid-buy-for-long-term-buy-hold-investors\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>ITOT: A Solid Buy For Long-Term, Buy-And-Hold Investors</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nITOT: A Solid Buy For Long-Term, Buy-And-Hold Investors\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-03 21:18 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4697108-itot-etf-solid-buy-for-long-term-buy-hold-investors><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Matteo ColomboInvestment Thesis iShares Core S&P Total U.S. Stock Market ETF (NYSEARCA:ITOT) is a buy due to its low cost, broad diversification. While the S&P 500 has outperformed total U.S. market ...</p>\n\n<a href=\"https://seekingalpha.com/article/4697108-itot-etf-solid-buy-for-long-term-buy-hold-investors\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"SCHB","symbol_name":"Schwab US Broad Market ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4697108-itot-etf-solid-buy-for-long-term-buy-hold-investors","article_id":"2440496688","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/668600179/image_668600179.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2440496688","pubTimestamp":1717420702,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Matteo ColomboInvestment Thesis iShares Core S&P Total U.S. Stock Market ETF (NYSEARCA:ITOT) is a buy due to its low cost, broad diversification. 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While the S&P 500 has outperformed total U.S. market funds over the past decade, mid and small cap stocks may have a competitive advantage looking forward. Therefore, ITOT, while comparable with Vanguard and Schwab U.S. total market funds, is a solid buy for long-term investors. Fund Overview and Compared ETFs ITOT is a passive exchange-traded fund, or ETF, that seeks to track the S&P Total Market Index. With its inception in 2004, the fund has $55.08B in assets under management. Because the fund tracks a total market index, it is broadly diversified with 2,518 U.S. holdings. By sector, ITOT is heaviest on information technology at 29.12%, followed by financials (13.44%) and health care (11.81%). For comparison purposes, other funds examined are Vanguard Total Stock Market ETF (VTI), Schwab U.S. Broad Market ETF (SCHB), and iShares Core S&P 500 ETF (IVV). VTI is the most diversified fund compared with over 3,700 holdings. While passively managed, it tracks a different index than ITOT by following the CRSP U.S. Total Market Index. SCHB is very similar to ITOT and VTI, but has a slightly lower weight on information technology than ITOT and is less diversified than VTI. Finally, IVV tracks the S&P 500 Index and therefore has roughly 500 holdings. As an S&P 500 fund, IVV excludes small-cap companies. Performance, Expense Ratio, and Dividend Yield Compared ITOT has seen a 10-year compound annual growth rate, or CAGR, of 12.37% with a total return of 159% over the past decade. The fund has slightly outperformed Vanguard and Schwab peers that saw 10-year CAGRs of 12.04% and 11.77%, respectively. Of note, S&P 500-based IVV performed better than the total market funds, with a 10-year average return of 12.91%. This is predominantly due to large and mega cap stock performance over the past 10 years, led by big tech. However, as we will discuss later, this large-cap outperformance may not always be the case.   10-Year Total Price Return: ITOT and Peer Funds (Seeking Alpha)A tremendous superpower for ITOT and compared funds is their extremely low expense ratio. At 0.03%, ITOT ties all peer funds for the lowest fees. However, it does not have the lowest expense ratio in existence. SoFi’s S&P 500 ETF has an expense ratio of zero, likely to attract new customers. However, 0.03% is still well below the average for ETFs. In addition to solid long-term growth, ITOT includes a 1.30% dividend yield, which is roughly on par with other compared funds including S&P 500-tracked IVV. Expense Ratio, AUM, and Dividend Yield Comparison     ITOT VTI SCHB IVV   Expense Ratio 0.03% 0.03% 0.03% 0.03%   AUM $55.08B $1.53T $28.42B $462.04B   Dividend Yield TTM 1.30% 1.36% 1.29% 1.31%   Dividend Growth 5 YR CAGR 4.54% 4.71% 4.10% 4.49%   Click to enlarge Source: Seeking Alpha, 2 Jun 24 ITOT Holdings and Key Consideration Factors Because ITOT and compared funds are cap-weighted and broadly diversified, each fund’s top holdings are similar. As a result of mega-cap, big tech performance, holdings like Microsoft (MSFT), Apple (AAPL), and NVIDIA (NVDA) dominate the top positions in each fund. IVV, which tracks the S&P 500, has a slightly greater concentration on these top tech holdings. Conversely, VTI which is the most diversified, holds a slightly lower weight than ITOT on these top big-tech companies. Top 10 Holdings for ITOT and Compared ETFs   ITOT – 2,518 holdings VTI – 3,719 holdings SCHB – 2,425 holdings IVV – 503 holdings   MSFT – 6.04% MSFT – 5.92% MSFT – 6.10% MSFT – 6.94%   AAPL – 5.46% AAPL – 5.11% AAPL – 5.50% AAPL – 6.28%   NVDA – 5.30% NVDA – 4.20% NVDA – 5.41% NVDA – 6.10%   AMZN – 3.15% AMZN – 3.35% AMZN – 3.25% AMZN – 3.63%   META – 2.01% GOOGL – 1.96% META – 2.04% META – 2.31%   GOOGL – 1.98% META – 1.94% GOOGL – 2.01% GOOGL – 2.29%   GOOG – 1.68% GOOG – 1.62% GOOG – 1.70% GOOG – 1.93%   BRK.B – 1.47% BRK.B – 1.44% BRK.B – 1.47% BRK.B – 1.70%   LLY – 1.28% LLY – 1.37% LLY – 1.29% LLY – 1.47%   JPM – 1.15% AVGO – 1.25% AVGO – 1.19% JPM – 1.32%   Click to enlarge Source: Multiple, compiled by author on 2 Jun 24 For investors considering a broad market ETF, there are three major considerations for investment. The first is that expense ratios are very important. The low costs for ITOT and peer funds make a large difference on investment returns over the long term. Secondly, while the performance of total U.S. market and S&P 500 funds are seemingly small, there are important considerations for each. Thirdly, while all the funds mentioned in this article are solid long-term investments, investors should keep in mind that they are U.S.-focused and do not include foreign holdings. As I will cover later, several studies anticipate that a U.S.-only portfolio could result in sub-optimal returns looking forward. Factor #1: Fees Matter For anyone who has ever said that a fund’s expense ratio does not really matter, I could not disagree more. A fund’s fees can be game changing over the long term. Let us take for example an initial investment of $100,000. That initial investment with zero fees would reach $320,000 in 20 years, assuming a 6% return. That same investment with a 0.50% expense ratio would see just over $290,000, a $30,000 difference. For investors that achieve $1,000,000 portfolios, an annual expense ratio of 0.05% would cost $5,000 per year.   Expense Ratio Comparison With $100,000 Initial Investment (American Association of Individual Investors)Therefore, funds like ITOT that see 0.03% expense ratios have a significant advantage over most other ETFs. While a portfolio of individual stocks does not require an expense ratio, automatic rebalancing based on market cap and massive diversification is, in my opinion, worth 0.03% in fees for total market ETFs. Factor #2: Total Market Advantages Over the S&P 500 Index The second key benefit for ITOT is that total market funds potentially could outperform the S&P 500 looking forward. While about 80% of a total U.S. market fund is captured by the S&P 500 index, S&P 500 funds have outperformed the broad market funds over the past decade. This was seen in the comparison between IVV and ITOT, as we covered earlier. Historically, stretches of underperformance for mid and small cap companies postures them for potential outperformance in the years ahead. Additionally, small caps also perform well during periods of reduced interest rates. I wrote about these factors in a previous article covering Vanguard Small-Cap Growth ETF (VBK) as well as an article on Vanguard Mid-Cap Growth ETF (VOT).   Small-Cap Historic Performance Comparison (FactSet Research Systems, Invesco)ITOT has about 76.1% weight on large cap holdings, but also includes 17.4% weight on mid cap and 6.5% weight on small cap. Therefore, I see this inclusion of mid and small cap as a competitive advantage for broad market funds over S&P 500 funds. Factor #3: What About International Equities? Despite ITOT’s potential to outperform the S&P 500 in the years ahead, it is not the be-all, end all fund for investors. The key drawback is that it lacks any foreign equities. Like small and mid-caps, international funds have also underperformed the S&P 500 Index over the past 10 years. This underperformance has resulted in their valuations being much more attractive compared to the U.S. market, which is historically at a relatively high cyclically adjusted price-to-earnings ratio.   Emerging Market vs. U.S. Equity P/E Ratios (Bloomberg, MSCI)As a result, international markets are more favorably valued than both U.S. total market and the S&P 500. This is particularly the case with emerging markets which, while volatile, have a much more discounted price-to-earnings compared to the U.S. market. Therefore, while I am a fan of U.S. total market funds like ITOT, this is a drawback that must be considered. Current Valuation  ITOT and peer total market funds hit an all-time high just last month and are currently down about 1% from these highs. Of the U.S. total market funds, SCHB has outperformed ITOT and VTI, but this difference is negligible. Similar to the past decade, S&P 500-based IVV slightly outperformed over this past year.   One-Year Performance: ITOT and Compared ETFs (Seeking Alpha)The S&P 500’s strong performance has resulted in a higher valuation than total U.S. market funds, as well as small cap, mid cap, and international funds. Examining price-to-earnings and price-to-book ratios, ITOT is slightly higher valued than peer total market funds but still more favorably valued than S&P 500-based IVV. Considering the potential outperformance of small and mid-caps looking forward, I see total market funds like ITOT as particularly attractive. Valuation Metrics for ITOT and Peer Competitors     ITOT VTI SCHB IVV   P/E ratio 24.82 23.90 24.15 26.04   P/B ratio 4.06 3.90 3.84 4.54   Click to enlarge Source: Compiled by Author from Multiple Sources, 2 Jun 24 Risks to Investors Due to the broad diversification of funds like ITOT that capture a high quantity of U.S. holdings, the greatest short-term risk is that the U.S. market sees a significant decline. I wrote previously on this risk in an article on Schwab’s International Equity ETF (SCHF) including a high CAPE ratio which is a measure of the cyclically adjusted price-to-earnings ratio. A miscalculation by the U.S. Federal Reserve fighting inflation combined with a high valuation of U.S. equities could result in a strong correction. Concluding Summary  Total market U.S. funds make up the largest portion of my portfolio. ITOT is a solid broad market U.S. fund that is very similar to VTI and SCHB. Although I personally prefer VTI due to its greater diversification and AUM, I still consider ITOT a buy. I favor broad market funds like ITOT over S&P 500 funds due to their inclusion of small and mid-cap holdings. While small and mid-cap underperformed over the past 10 years, a reversal to this trend is very possible when examining historic cycles.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2440496688"}