VTMSX vs VIOO?

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miket29
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VTMSX vs VIOO?

Post by miket29 »

Is there a difference in this pair other than one being a mutual fund and the other an ETF? Both say they track the S&P Small-Cap 600 Index. VTMSX has "tax managed" in its title, but if it tracks the same index as VIOO wouldn't it be expected to perform similarly?
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Re: VTMSX vs VIOO?

Post by stocknoob4111 »

They are more or less identical: https://tinyurl.com/y8wry2vc

In terms of tax efficiency seems to be a wash, look at Portfolio income, some years VTMSX is marginally more, in other years VIOO is marginally ahead, and the difference is too small to even bother.

The CAGR is almost identical over the last 10 years and so is the final ending balance so I would say they are almost identical. VTMSX is a hair better, has a higher Sharpe ratio and fractionally better performance with a fractionally lower Max drawdown so I would go with VTMSX and that is actually the fund I own.
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grabiner
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Re: VTMSX vs VIOO?

Post by grabiner »

The tax-managed fund is likely to be slightly more tax-efficient, because it has more qualified dividends. (Unlike Tax-Managed Capital Appreciation, it isn't managed for a lower dividend yield).

But if you aren't in a high tax bracket, saving three basis points over VTMSX by investing in the iShares ETF IJR which tracks the same index may be better. Alternatively, you could use Vanguard Small-Cap Index; the ETF class VB is even less expensive, although the stocks aren't quite as small. (The CRSP Index that Vanguard uses tracks the bottom 15% of the market; S&P's index is about the bottom 10%.)

(edited to fix typo)
Last edited by grabiner on Sun Apr 18, 2021 11:02 pm, edited 1 time in total.
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urban
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Re: VTMSX vs VIOO?

Post by urban »

grabiner wrote: Sun Apr 18, 2021 2:08 pmAlternatively, you could use Vanguard Small-Cap Index; the ETF class VB is even less expensive, although the stocks aren't quite as small. (The CRSP Index that Vanguard uses tracks the bottom 15% of the market; S&P's index is about the bottom 10%.)
Isn't the additional difference between CRSP Index used by VB and S&P 600 that S&P 600 is selected by committee and CRSP Index is more like a computer generated?
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Re: VTMSX vs VIOO?

Post by Scooter57 »

grabiner wrote: Sun Apr 18, 2021 2:08 pm The tax-managed fund is likely to be slightly more tax-efficient, because it has more qualified dividends. (Unlike Tax-Managed Capital Appreciation, it isn't managed for a lower dividend yield).

But if you aren't in a high tax bracket, saving three basis points over VTMSX by investing in the iShares ETF IJR which tracks the same index may be better. Alternatively, you could use Vanguard Small-Cap Index; the ETF class VB is even less expensive, although the stocks aren't quite as small. (The CRSP Index that Vanguard uses tracks the bottom 15% of the market; S&P's index is about the bottom 10%.)

(edited to fix typo)
The CRSP indexes don't require that a company be profitable for inclusion and does not have people curating the index. The S&P 500, 400, and 600 do. This makes a big difference with smaller cap companies.
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Re: VTMSX vs VIOO?

Post by urban »

So theoretically, on the long run, VTMSX/VIOO/IJR should perform better than VB?
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grabiner
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Re: VTMSX vs VIOO?

Post by grabiner »

urban wrote: Mon Apr 19, 2021 7:57 am
grabiner wrote: Sun Apr 18, 2021 2:08 pmAlternatively, you could use Vanguard Small-Cap Index; the ETF class VB is even less expensive, although the stocks aren't quite as small. (The CRSP Index that Vanguard uses tracks the bottom 15% of the market; S&P's index is about the bottom 10%.)
Isn't the additional difference between CRSP Index used by VB and S&P 600 that S&P 600 is selected by committee and CRSP Index is more like a computer generated?
Yes, this is correct. The Russell 2000 (VTWO) is an index which actually tracks the bottom 10% of the market. The S&P 600 selects 600 companies from about the same range to be representative of the market, but it also has other criteria. In the long run, I wouldn't expect the Russell or S&P to do better, but there are many markets in which there is a difference. (In particular, the S&P 600 missed the 2000-2002 Internet crash, while the Russell 2000 was hit hard.)
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Re: VTMSX vs VIOO?

Post by grabiner »

urban wrote: Mon Apr 19, 2021 2:11 pm So theoretically, on the long run, VTMSX/VIOO/IJR should perform better than VB?
The smaller cap range means that the S&P small-cap index is likely to outperform the CRSP index when small-caps outperform mid-caps. If small-caps should have higher expected returns as a premium for the additional risk, then the S&P should capture those higher returns in the long run, but will also add more to your portfolio risk. You could also get the small-cap exposure by holding a larger amount in the CRSP index than you would hold in the S&P index.
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Re: VTMSX vs VIOO?

Post by urban »

grabiner wrote: Mon Apr 19, 2021 5:56 pm The smaller cap range means that the S&P small-cap index is likely to outperform the CRSP index when small-caps outperform mid-caps. If small-caps should have higher expected returns as a premium for the additional risk, then the S&P should capture those higher returns in the long run, but will also add more to your portfolio risk. You could also get the small-cap exposure by holding a larger amount in the CRSP index than you would hold in the S&P index.
I mean, beside the cap range, the S&P 600 may have a slight edge over the CRSP because of the profitability clause...
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Re: VTMSX vs VIOO?

Post by anil686 »

urban wrote: Tue Apr 20, 2021 8:35 am
grabiner wrote: Mon Apr 19, 2021 5:56 pm The smaller cap range means that the S&P small-cap index is likely to outperform the CRSP index when small-caps outperform mid-caps. If small-caps should have higher expected returns as a premium for the additional risk, then the S&P should capture those higher returns in the long run, but will also add more to your portfolio risk. You could also get the small-cap exposure by holding a larger amount in the CRSP index than you would hold in the S&P index.
I mean, beside the cap range, the S&P 600 may have a slight edge over the CRSP because of the profitability clause...
+ 1 - I have linked an article by Cliff Asness regarding this. I will say, it made a lot of sense and since then I have only used either Tax managed small cap or SP 600 funds for small cap. I think the profitability filter matters with small cap....

https://www.aqr.com/Insights/Perspectiv ... pectacular
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Re: VTMSX vs VIOO?

Post by secondopinion »

urban wrote: Tue Apr 20, 2021 8:35 am
grabiner wrote: Mon Apr 19, 2021 5:56 pm The smaller cap range means that the S&P small-cap index is likely to outperform the CRSP index when small-caps outperform mid-caps. If small-caps should have higher expected returns as a premium for the additional risk, then the S&P should capture those higher returns in the long run, but will also add more to your portfolio risk. You could also get the small-cap exposure by holding a larger amount in the CRSP index than you would hold in the S&P index.
I mean, beside the cap range, the S&P 600 may have a slight edge over the CRSP because of the profitability clause...
We do not know that S&P 600 has an edge on CRSP. CRSP is taking less small-cap risk by taking some more credit risk; which will win is only known afterwards (and likely will be hardly a difference).
It is better to be half-wrong than have a 50% chance of being all-wrong. With the former, you will learn and have money to try again. Otherwise, you will never learn and will have nothing eventually.
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