iShares Core S&P Total US Stock Mkt ETF | ITOT |
by Mo'ath Almahasneh
IShares Core S&P Total US Stock Market ETF ITOT offers a highly efficient and well-diversified exposure to the entire US stock market while charging a rock-bottom fee, a recipe for success over the long run. This fund tracks the S&P Total Market Index, which encompasses the entire investable US opportunity set. The index weights constituents by market cap after applying liquidity and investability screens to ensure the index is easier to track. Market-cap weighting forms the bedrock of this strategy, which harnesses the market’s collective wisdom of each holding’s relative value with the added benefit of low turnover and trading costs. It’s a sensible approach because the market tends to do a good job pricing the stocks that make up the bulk of this portfolio. Larger stocks attract liquidity and widespread investor attention such that prices quickly reflect new information. Total-market funds mitigate transaction costs because they don’t target specific segments of the market and aren’t prone to forced buying or selling when stocks enter or exit a market segment. Still, a small amount of turnover can occur at the lower rungs of the portfolio. This index implements buffer rules around its lower market-cap bound to limit unnecessary turnover since dealing in thinly traded small and micro-caps can increase transaction costs. This fund includes small- and micro-cap stocks, which improve the end portfolio’s diversification and can provide a performance edge when small caps rally, as they did in the fourth quarter of 2020. They tend to be more volatile than large-cap stocks but have minimal impact on portfolio volatility given their small allocation. Market-cap weighting may expose the strategy to stock- or sector-level concentration risk when a few richly valued companies or sectors power most of the market gains. As of January 2024, the top 10 holdings made up the largest portion of the S&P Total Market Index (27%) in several decades. Likewise, the 28% allocation to technology stocks was the highest over the same period. But this is not a fault in design, the S&P Total Market Index simply reflects the market’s composition. In the long run, its broad diversification, low turnover, and low fee outweigh these risks. |
Morningstar Pillars | |
Pessoas | Above Average |
Parent | Above Average |
Processo | High |