VTI vs ITOT: A Value Investor's Decision on Market Exposure

For a value investor, the ultimate goal is to capture the market's intrinsic value over the long term. The question of choosing between VTI and ITOT is not a strategic decision about which market to own, but an operational one about which efficient path to take. In this light, the two funds are near-identical.

The foundation of any value investment is cost efficiency. Both ETFs deliver this principle flawlessly, charging the same rock-bottom 0.03% expense ratio. This alignment means neither fund has a structural advantage in preserving capital through fees. Their performance and risk profiles are so similar that over a five-year period, a $1,000 investment grew to $1,730 in ITOT and $1,728 in VTI. For the patient investor, this is the definition of a wash.

The primary difference is scale. VTI manages $583 billion in assets compared to ITOT's $81.8 billion. This size gap translates directly to liquidity and operational efficiency. VTI's average daily trading volume is more than double ITOT's, making it the largest and most liquid fund of its kind. This scale advantage is a tangible benefit for investors who may need to enter or exit positions without moving the market.

The bottom line is that the choice is a minor preference. Both are exceptionally efficient vehicles for capturing the entire U.S. market. The decision comes down to whether you prefer the largest, most liquid fund available or a slightly smaller, but still massive, alternative. For a value investor focused on the long-term compounding of intrinsic value, the path matters less than the destination.

Analyzing the Subtle Differences: Scale and Diversification

For a value investor, the goal is to own the market at a fair price, not to outsmart it. The core thesis-that VTI and ITOT are near-identical for capturing intrinsic value-holds up under scrutiny. Yet, the subtle differences in scale and diversification are worth examining, as they can impact the long-term compounding experience and risk profile.

The most tangible distinction is the number of holdings. VTI holds 3,527 stocks, while ITOT holds 2,498. This gap of over 1,000 individual securities provides VTI with marginally greater diversification across the total market. However, the material impact is negligible. The "extra" holdings in VTI are primarily micro-cap stocks that are excluded by ITOT due to liquidity screens. In a market-cap-weighted strategy, these 1,000 stocks, even in aggregate, account for only a small fraction of the total portfolio. For the patient investor, this is a difference in the fine print, not a material edge.

A more nuanced point is the slight difference in sector weight. VTI has a marginally higher weight in the technology sector, which may reflect its broader index coverage. This tilt is minimal-technology makes up about 35% of VTI versus 34% of ITOT-and is likely driven by the underlying index construction rather than a strategic bet. For a value investor, this is a wash; both funds are overwhelmingly exposed to the same mega-cap leaders.

The most significant practical advantage, however, is scale. VTI's $583 billion in assets dwarfs ITOT's $81.8 billion. This vast size translates directly to superior liquidity. VTI's average daily trading volume is more than double ITOT's, offering investors a tangible benefit for large trades. The lower bid-ask spreads and tighter execution that come with such scale are real operational efficiencies that can matter over time.

The bottom line is that these differences are indeed hairsplitting. The diversification and sector tilts are so minor they won't move the needle on long-term returns. The liquidity advantage of VTI is a real, tangible benefit, but it is a cost-of-trade consideration rather than a return-enhancing feature. For the value investor focused on the destination-the long-term compounding of the market's intrinsic value-these are differences that matter less than the identical, rock-bottom cost of entry.

Valuation and Performance: The Long-Term Compounding View

For a value investor, the ultimate test of any investment is its long-term compounding power. When it comes to VTI and ITOT, the performance data confirms they are, in practice, the same vehicle for capturing the market's intrinsic value.

The recent picture shows a negligible divergence. Over the past year, ITOT returned 17.64%, slightly underperforming VTI's 17.81%. This 0.17 percentage point gap is statistically insignificant and likely attributable to minor tracking differences or timing in the underlying index rebalancing. It does not signal a material advantage for one fund over the other.

Zooming out to a decade, the parity becomes absolute. Over the past ten years, ITOT's annualized return was 15.44%, compared to VTI's 15.49%. This near-identical long-term trajectory is the hallmark of an efficient, low-cost index fund. The funds are tracking the same broad market with such precision that the returns are indistinguishable over a full market cycle.

This performance consistency is further validated by their risk profiles. Both funds have a beta of 1.04, meaning they move in lockstep with the overall market. Their maximum drawdowns over the past five years were virtually identical, at -25.35% and -25.36% respectively. This confirms they are not only delivering similar returns but are also bearing the same level of systematic risk.

The bottom line for the value investor is clear. The slight recent underperformance of ITOT is noise against the overwhelming signal of long-term parity. The near-identical returns, risk metrics, and rock-bottom fees mean neither fund offers a superior risk-adjusted return. The choice between them is not a bet on future performance, but a preference for scale or diversification-factors that do not alter the fundamental compounding equation.

Catalysts and Risks: What to Watch for the Thesis

For a value investor, the thesis that VTI and ITOT are near-identical is built on the assumption that their underlying index methodologies will continue to produce virtually indistinguishable results. The primary risk to this thesis is that a significant divergence in index construction or tracking error could emerge over a very long period. While this is not currently evident, the funds are not tracking the exact same index. VTI follows the CRSP US Total Market Index, while ITOT tracks the S&P Total Market Index. Over decades, subtle differences in how these indexes handle micro-cap stocks, rebalancing, or index rules could theoretically compound into a measurable performance gap. For now, the evidence shows this risk is dormant, but it is the one factor that could break the near-parity.

A key catalyst that could challenge the thesis would be a major change in the underlying index composition or a fundamental shift in market structure that disproportionately benefits one index. For instance, if regulatory or liquidity changes made micro-cap stocks significantly more important to the total market, VTI's broader coverage could become a material advantage. Conversely, if the S&P Total Market Index were to undergo a structural revision that better captures a future market leader, ITOT could gain a tracking edge. These are speculative scenarios, but they represent the kind of external shock that could turn a minor difference into a meaningful one.

More broadly, the choice between these two ETFs is a distraction compared to the overarching market environment. For a value investor, the broader market context-such as a sustained shift from growth to value stocks-will matter far more than the choice between VTI and ITOT. As seen in early 2025, when value stocks underperformed growth by more than 9 percentage points, the market's tilt can create powerful headwinds or tailwinds for any portfolio. The real investment decision is whether to be broadly exposed to the entire market, which both funds provide, or to tilt toward specific styles like value, which requires different vehicles entirely. In that light, choosing between VTI and ITOT is a matter of operational preference, not strategic positioning. The catalysts and risks that truly matter lie outside these two funds, in the long-term cycles of valuation and investor sentiment.